Labor Theory of Value

A long one here.

This might not be the greatest of debates, rather more of a crash course into the history of economic thought, specifically the inquiry into value in economic circles into the 19th century. But the discussion has been over for more than a century. The marginalist notion of value won definitively. However, there are naturally still people who show up on the boards on rare occasion to defend the idea of the LTV, and it’s at least somewhat possible that one of them might surface to contest the details of the story I’m about to tell. So… might be fun? At very least, it could be educational to those without much prior exposure to these sorts of ideas.

So what the hell is the Labor Theory of Value anyway?

Backing up to Adam Smith
Karl Marx wasn’t the first to tackle this issue. He was working in the tradition of the classical economists, most notably Adam Smith and David Ricardo. In order to understand what Marx was trying to accomplish, it’s helpful to investigate the thoughts and failures of his predecessors. Let’s back up to [The Wealth of Nations](http://geolib.com/smith.adam/won1-04.html\). To steal the pithy quote from philosophy, all of economics can be seen as footnotes to this book. From the beginning, one of the key questions of economics was trying to discover where prices come from.

We can rework the vocab here into more familiar terms.

Value-in-use we tend to call today utility. Value-in-exchange is price, or more specifically, the price ratio between different objects. How many boxes of condoms trade for one Ferrari? How does the price of an Ikea table compare to an hour’s of billing by an expert lawyer? The apparent disconnect between utility and price puzzled people well into the 19th century. Water is the most useful stuff on the planet. Without it, we would die. Major league utility there. And yet its price is extremely low compared to something like a shiny piece of carbon. This is the diamond-water paradox and Smith took a crack at trying to unravel it. And while The Wealth of Nations is a remarkable book, well worth reading and thinking through for anyone who has the patience for the language (anyone who settles exclusively with Das Kapital without also engaging with Smith is doing themselves a major disservice), this is one issue that Smith didn’t get right.

Is there a connection between value-in-use and value-in-exchange? Between the utility of an object and the relative price it fetches on the markets compared to other items? Today we would say yes, obviously so, but previously it had been less than obvious. Smith denied the connection. Along with Ricardo, he believed he needed a theory of relative prices independent of the usefulness of objects.

Marx was part of the selfsame tradition.

Again from Smith:

This is his explanation of price, an intro-version of the Labor Theory of Value. He wasn’t the first to create it but he might’ve been the clearest classical writer on what the problem was. Smith labels the explanation just above “natural”, but even so, he still had some problems with it, and tried to distinguish between the “labor embodied” in a product (how much the workers had been paid who produced it) and the “labor commanded” (how much new work could be hired with the final sales price of the item). The difference between these two numbers would be a key feature of Marx’s economics.

Following Smith, Ricardo also tangled with the notion of value. Ricardo tried to be more consistent, less loose than Smith with his terminology, and subsequently ran into his own problems trying to develop a Labor Theory of Value that could actually hang together. So this was the view into value in the 18th century and then into the 19th. To jump forward a moment to Marx:

“Totally independent”, he claims. No connection at all between utility and relative prices.

Oh really?

For fairness, we should put in some caveats here. First, we’re not talking about any object under the sun. A unique work of art isn’t subject to mass production. None of the early advocates of any version of the LTV would have claimed that the price of The Last Supper was determined by the relative number of hours that went into producing it. The idea as developed under Ricardo was that for mass-produced objects, the relative prices would in time reflect the relative amounts of labor that went into the goods, which would include the labor that went into the goods that were used as tools to help make more goods. If bushels of wheat take roughly half the labor time for the average worker to produce than tables, then over time the ratio of market prices of a bushel of wheat to a table would eventually settle to 1:2.

We could throw all sorts of criticisms against Ricardo’s idea. Many people did, loudly and publicly. Writing at a later date, Marx was an observer of these criticisms and tried to learn from the previous failures. He wanted to build up a new form of the LTV that acknowledged the previous attacks, and had specific arguments in response. In a certain sense, he was victorious in his defense.

This is in the same sense that King Pyrrhus was victorious against the Romans.

**Necessary vs Sufficient **
Without the sweat and toil of workers, there would be no economy. This is plainly and obviously true.

It is also true that without energy from the sun, there would be no economy. It is also true that without the atoms we use for production, both as inputs and as tools to rearrange the inputs, there would be no economy. It is also true that without someone taking a risk in allocating resources to devise new tools, our economy would not grow.

Human minds have a tough time assigning praise or blame. Let’s say there’s a light bulb that needs three separate switches to be flipped in order for it to light up. Three different people are responsible for these switches, one person per switch. One day the light inspector arrives and sees that the light is not on. Problem. After further investigation, she notices that only one of the three necessary switches has been flipped. Mr Bee and Mr Cee both failed to flip theirs.

How is blame to be apportioned?

In a natural language like English (or German), there’s no nice, pithy way to describe culpability, not with full precision in a way that everyone would naturally agree with. We can express the idea, but we have to waste a lot of words on it. Let’s do that: There is no way for the light to shine if Mr Bee forgets his task. We might say then that Mr Bee is 100% responsible for the failure. But even if he had remembered, that would not have been enough by itself for the light to shine. There was another switch, too, that wasn’t flipped.

Mathematicians distinguish between necessary and sufficient conditions. It is a necessary condition that each switch must be flipped for the light to shine, but each switch by itself is not sufficient.

Moral matters are built on top of this logical structure, which makes things even uglier. Who’s to blame? Are they both 100% responsible? Is it 50% responsibility for each? I guess there are arguments to be made either way. But there’s even more complications. What if one switch is harder to flip than the other? What if Mr Cee knew for a fact that Mr Bee was home sick with the flu that day, and Mr Cee’s switch sometimes gives him a mildly painful shock when he flips it? Is Mr Cee still to blame? Or what if Mr Cee is kind of an asshole? Human nature being what it is, we might blame one person disproportionately more for an offense if he insulted us at a party last week. Or if he belongs to the wrong political party.

We can think about the reverse case, and the assignment of praise instead of blame.

What if the light is shining, and Mr Bee is someone we like, and Mr Cee someone we detest. Say, for example, Mr Bee is called the proletariat, and Mr Cee the bourgeoisie. Upon whom do we heap our praise when more than one agent is responsible for making the machine work? For the most viciously tribal minds among us, it might be tempting to heap all available praise on members of our favored ingroup, while ignoring any contribution from members of the outgroup.

This might be especially tempting when the stereotypical member of the outgroup is a total jerk.

Approaching Marx
We’re getting closer.

Marx isn’t a moron. He realizes that there is more than one switch that needs to be flipped in order for things to be produced.

(Penguin translation.)

He’s aware that there is more than one necessary condition here. But as far as assigning praise for the creation of new goods, he just doesn’t care. He has effectively decided in advance that he wants value to come from labor, so he makes a judgment call. The moment labor enters the picture, he decides we’re talking about a different kind of value that is separate from the value that existed before. He’s distinguishing his notion of “value” from the notion of “use-value” (with the latter term being essentially the same as value-in-use from Adam Smith). He’s using the existence of labor as justification for this distinction between different kinds of value.

Already this is getting messy. Well, that’s not a sin by itself. Sometimes that’s unavoidable. What he’s doing here is setting out his definitions. Utility is different from value? Okay then. How? Through labor. This is how he’s defining his words. From slightly earlier in the chapter:

We might quibble that there are plenty of properties that remain after we ignore the particular (“qualitative”) uses of objects, but we can posit this step as true for the sake of argument. Again: he’s using labor as the dividing line that separates the underlying value of goods from the utility that they provide. This isn’t new. He’s angling at the same paradox that puzzled people before him. He’s stuck with the same puzzle Adam Smith was captured by. If relative prices aren’t determined by utility, then what’s going on? He posits labor as the source of value, since utility did not seem to be doing the job.

(Marx was writing contemporaneously with Walras, Jevons, and Menger, who independently described the direct connection between value-in-use and value-in-exchange. One of my great “historical regrets” is that he didn’t encounter the idea earlier in his life. But let’s skip all that and try to see where he’s going with all this.)

The problem here is falling into the necessary vs sufficient trap.

It’s true that these goods only exist because workers toiled to bring them into existence. Without the labor, they do not exist. But the are many other reasons why these goods exist beyond the labor of the workers. The labor is absolutely necessary for the existence of a productive industrial economy, but it is not sufficient. We require more conditions. One thing in particular that industrial economies need is the cleverly-made equipment that makes the toil of those workers more efficient in producing items.

That equipment is called “capital”.

We haven’t run out of necessary conditions. We could list dozens of other things that are absolutely required for production to exist. We need the dirt to grow plants. We need the sunlight and the rain. We need enough foresight and cleverness to realize that planting now will result in crops in a later season. In the quote above, Marx dismisses many of these extra conditions as mere “use-value” and not “value”. He ignores, too, that equipment must not only exist but be actively assigned to producing good A instead of good B. There are large-scale decisions involved. That is not “labor” as he has defined it, but it’s still a necessary condition. There are lots and lots and lots of necessary conditions here, but Marx is positing that “value” stems only from the labor. All those other necessary conditions are swept away without any further consideration for value. Labor is necessary, therefore we measure value with labor and only with labor.

Well… okay? I guess?

This is a potentially big problem. But let’s just swallow this objection for now and see where he’s going with it.

Victory by Definition
As mentioned above, lots of criticisms were leveled at previous versions of the LTV, and Marx observed and reflected on those criticisms when devising his own version of it. One previously offered criticism against the LTV is that people are different. An hour of labor from an industrious worker might not be equivalent to an hour of labor from someone lazy.

Marx’s solution is to even out all these human differences with averages. From a practical perspective, this makes a helluva lot of sense.

We can’t measure the amount and quality of effort person by person, but we can look at averages and judge labor as an input from that perspective. This means we can start talking about a uniform, standardized unit of labor time, measured by the average. This is no longer direct reality, of course. We’re abstracting away from actual human beings here and introducing a higher-level measure that irons out the wrinkles of individual differences.

Fair enough then. This is perfectly reasonable.

Now let’s add one more sentence.

Here is his petard. Watch as he hoists it.

One More Detour: WHOO!-value
I’m going to define a new notion of value called WHOO!-value. There is, by definition, 100 units of WHOO!-value every day. These units are an abstraction. No matter how much effort goes into the production of each good in an economy, I define that all finished goods are to have WHOO!-values distributed among all of them weighted by their final sales prices. For example, in an economy where the total production is 100 hats a day for one dollar apiece, then each hat represents a single unit of WHOO!-value.

Let’s suppose now that technology changes, and the economy can produce not only a hundred hats at a hundred dollars apiece per day, but also 50 shirts sold at two dollars apiece.

The nominal economy is twice as big. 200 dollars daily are changing hands instead of 100. Each person can enjoy not only wearing hats but also wearing shirts. By definition, each hat now contains half as much WHOO!-value as it did before. This is because the 100 daily units of WHOO!-value must be distributed among both hats and shirts now, meaning that the hats are no longer as WHOO!-valuable as once they were.

Conclusion: The hats contain only half as much value, now that shirts are being produced. This seems a bit problematic, to say the least, but let’s ask a slightly different question.

Is WHOO!-value “factually” wrong?

Obviously no. It is what it is. It is as it has been defined to be. We’re not dealing with matters of correctness or incorrectness here, but strictly with language that clarifies vs language that obscures. Definitions aren’t right or wrong, but they can be good or bad. The best language splits reality apart at the seams. The best terminology slices up our world into manageable pieces so that we can hold them tightly inside our tiny minds to examine them in minute detail with greater clarity. Then after we put the pieces back together, we can hope that it’s in a way that is more understandable than it was before.

WHOO!-value does not do that.

It is true by definition, tautological, and therefore it is completely fucking meaningless on its own when it is assigned arbitrarily to reality without any concern for how reality actually works. Rather than having a definition designed to match up with features we observe in reality, we have instead a reality whose “value” gets arbitrarily re-labelled whenever technology advances.

Now let us return to Marx clarifying “socially necessary labor-time”.

Let’s bask for a minute in what he’s saying here.

There were hand-looms. Using a hand-loom, it took a certain amount of time in order to create woven fabric. Then BOOM. The power-loom is invented. SHAZAM. Half the effort is required. KAPOW. The old hand-loom people are doing exactly what they did before but can’t produce as efficiently as workers using the new equipment. With the assistance of the power-loom, workers can produce the same output in half the time. So after the invention of this new splendiferous device, if there are any people still out there in the world using the old hand-loom instead of the new power-loom to create their goods, what happens to the value of their produced goods?

The value of the labor crystallized in the output of their hand-looms drops in half automatically. By definition. This is how he has defined the word “value”! They put in the same amount of effort, using the same techniques they always used, but given that other people in the world are now working with a new machine, the “socially necessary labor-time” required for their output is half as much.

Yesterday a full day’s “value” was crystallized in the output of their labors. Today they put in a full day’s work, but a new device has been invented, so they get credit for only a half day’s “value” for the same physical labor. Same output, same amount of physical effort, but after the new device is invented, their old method of labor automatically no longer contains as much “value”. By definition.

We can take this idea further. Imagine an economy where everybody works 60 hours a week to eke out the merest of subsistence lifestyles. Then suddenly they have a technological/environmental/whatever-al change, such that now 10 hours of work can produce the same output as 60 hours previously. These people decide to work only 30 hours from now on. With those 30 hours – half the effort – they can produce three times the output that they could previously.

According to the Marxist LTV, the amount of value in the goods they produce in their richer economy is now half as much as it was when they were on the ragged edge of survival. By definition.

I am not making this up.

A society can have more “material wealth” – meaning in Marx’s terminology more useful goods – while simultaneously having a fall in the “value” of those goods because manufacturing has become so much more efficient, there is less labor required to create those goods.

This is the result of Marxist’s Labor Theory of Value. Well, people call it a theory but it doesn’t quite qualify, does it? It’s Marx’s Labor Tautology of Value, where value is explicitly defined to come only from labor, therefore it comes only from labor. He is apparently comfortable with the distinction he has drawn here.

The rest of us don’t have to be.

So What Happened Here?
He needed to protect the LTV against various criticisms that popped up against previous versions of the idea.

Eventually his defense of the LTV became so strong that he insulted it against any possible criticism. In doing so, he also insulted it from reality itself. The Marxist LTV is not “factually wrong” or “incorrect” or anything along those lines. It is a mere definition, and definitions are neither correct nor incorrect. It just is. The question is whether the definition is useful or not useful. I should hope that the answer to that question is obvious.

Previous versions of the LTV all had consistency problems. Before Marx, Ricardo worked hardest on creating a fully-formed and self-consistent version of the idea. He eventually gave up when he stumbled on the fact that the work we do is done with machines. With capital. That capital equipment is not just the product of work. There is also cleverness that goes into its construction, as well as some risk that the machine will be allocated to some activity that ends up being wasteful instead of productive. Every single machine we create is subject to this risk that it won’t work out the way we wanted, that the hope for more efficiency isn’t actually realized. Somebody has to deliberately put a stock of equipment on the line, face up to this risk, in a venture that might turn out badly. This is a serious issue that any theory of value must confront in some manner.

Ricardo was never able to reconcile the problems of his Labor Theory of Value with the underlying need to describe reality with a language – with a theory – that would do justice in expanding our understanding. His boat was full of holes, and for every hole he plugged, another hole appeared, and the vessel never became sea-worthy. Eventually he gave up. It wasn’t worth the effort.

Marx went a different direction and just said, fuck the machines. He ignored the capital equipment entirely as a source of value. He ignored everything except the average amount of labor required to produce a good. That is “value” in his terms, and nothing else. If a new machine is created that makes productivity twice as high, then the labor crystallized in each item is half as valuable. The machine itself does not enter the value-story directly, only indirectly in its reduction in the amount of labor time needed for production of goods, which paradoxically means that better machines can result in an economy that produces less “value” because people work less hard. If the labor time is less, then the value of the objects produced by that labor is less. (By definition.) The machine has no other influence on value, because in this particular form of the Labor Theory of Value, the value must necessarily come from the labor-time alone and not from any other source.

Value is a word of praise, a word with positive connotation. Marx aims the praise of this word only at labor and ignores absolutely everything else in the world.

Ricardo could not plug all the holes in his boat. Marx, in contrast, actually did achieve his quest for self-consistency. He defined himself into victory. He created a perfect boat by tautology, but of course, a boat that is defined to be perfect by definition can’t actually sail anywhere. If the world changes, then the definition of what the boat is changes with it, because that’s how tautologies work.

The Marxist LTV is slightly more sophisticated than WHOO!-value, but honestly, not by much. It is difficult to believe that anyone who has carefully read the book today could honestly advocate Marx’s version of the idea. “I define myself to be right, therefore I am right” is not much of an argument.

There are insights in Das Kapital. These insights exist despite, not because of, Marx’s Labor Theory of Value.
**Argument from Connotation **
You don’t see a whole lot of intellectual output from any Marxian past Marx. You can’t build on a foundation of sand.

Wikipedia has a list of Marxian economists. The list is problematic, at least from the perspective of the Labor Theory of Value. The most important members of it, most especially Pierro Sraffa (who is in reality identified as a neo-Ricardian, not as a Marxian although he was influenced by Marx), reject the Marxist LTV as described above. The real communist revolutionaries got engaged in doing the dirty work of murdering millions of people, which left them with too little time to seriously engage the hollowness of the tautology. The academicians whose job it was to build on the previous edifice were unable to do so. They set to work trying, and of course failing, to salvage the Marxist LTV. Unfortunately, there’s nothing to salvage from a definition that has been so well insulated from reality in the quest for self-consistency.

That might be why you haven’t heard of any of them.

But there is at least some appeal remaining to the LTV, or it wouldn’t have its occasional defenders appear here and in other places. It’s just that the thrust of their argument is emotional, rather than intellectual. They engage in my absolute least favorite of logical fallacies: Argument from Connotation.

We see this sort of thing all the time from the other economic extreme.

More often than visiting Marxists, we receive visiting anarchist libertarians, and they will make moral arguments in support of their favored economic policies. “Taxation is theft” is one common refrain. When you break down that sentence, what you’re left with is, essentially, “Taxation is [negatively charged word]” They have a label that is emotionally charged, and they apply the label to a thing they don’t like. That is the core of the argument. This is highly unpersuasive when so few of the rest of us share their moral presumptions.

The edifice that Marx attempted to build on top of his LTV is the same, just from the opposite end of the spectrum.

Employers hire workers, and then sell the output made by those workers for more than they paid the workers – labor-emobided vs labor-commanded in Adam Smith’s terms. But for Marx all value comes from workers, by definition. Therefore the total amount by which the firm sells its output, in excess of the amount paid its workers, is EXPLOITATION. (Dun-dun-DUN!) Completely ignored is the money paid for the equipment, or the financing, or R&D, or the decision of which products to make. All of that doesn’t count. It isn’t labor, therefore none of it adds “value”.

By definition.

Taxation is theft, and therefore it is bad and should be gotten rid of.

Work for wages is exploitation, and therefore it is bad and should be gotten rid of.

Argument from Connotation: The entire edifice of the LTV as envisioned by Marx is to give some semblance of intellectual argument in favor of applying a word-with-negative-connotation to people they don’t particularly like. That’s the entirety of it. When you decide to define that all value comes from labor, then all value comes from labor. And that’s it. That’s the end of the story.

Here’s a better argument: a lot of people hate their jobs because their jobs are hideously awful. It would be nice to live in a world in which all people received a minimum sustainable income with no need for that sort of hideous work. I want that to happen, and I’m not alone in this. With a bit of luck, we’ll get there eventually. But we’re not going to get closer to that point by relying on arguments where we declare ourselves victorious by definition, as if rewriting a dictionary somehow makes our ideas more serious or correct, as if pinning a negative label on people we disagree with automatically makes them evil.

That is not the way logic works.

Not the Whole of his Writings
I need to emphasize here that there is more to the book than his tautological LTV. All the quotes I pull above come from Chapter 1. People who are interested in salvaging his reputation from other things he did can certainly make a case pulling from other ideas in the rest of the book, not to mention the rest of his writings.

As I understand it, the historical ideas were literally unprecedented. Nobody before had viewed the unfolding of history as the result of a logical sequence of events, where one phase of history necessarily followed another in a deterministic chain. And Marx not only outlined the historical chain of events up until his time but also the logical sequence of events that would subsequently follow, a sort of Hari Seldon of the poor.

(His predictions were awful, though. Wages increased, they didn’t fall. The gap between rich and poor narrowed, it didn’t increase. This is true even in the present day, when we look at the world economy. The proletariat did not expand to include a greater and greater portion of the total population, with the few remaining rich capitalists putting all independent owners out of business and taking everything over to make the system top heavy and unstable and ripe for revolution. Communist revolutions appeared in poor countries, not rich capitalist ones. The guy was Wrongy McWrongerson. But still. Predictions don’t necessarily have to be right to be interesting, and apparently nobody had ever tried this form of prediction before.)

From my perspective, Adam Smith is about a hundred times more interesting. But then again, Adam Smith is about a hundred times more interesting than practically any economist who ever lived, so that’s hardly a fair comparison. There are still arguments out there for people who want to defend other parts of Marx’s legacy. Even as an economic dead end, Marx was a historical watershed, arguably one of the most influential people who ever lived. Shame about the nature of that influence, though. Shame about what people did in his name.

This sentence is an offence to language.

This is probably clear from context, but just in case:

Not “insulted”.

Very interesting read, Hellestal, but may I ask what prompted this? I know we had a poster here who loved to advocate for the Labor Theory of Value, but he hasn’t done that for awhile, has he?

Whenever I come up with a new metaphor or analogy that I feel explains an idea more clearly, it’s like an itch that I really need to scratch. I want to test it against other people, see if it’s as clear and compelling to others as it seems to me. It’s probable that the original impulse was a couple posters here from however long ago. That might’ve been when the seed got planted, when the itch started: “Aha, this might just be a good way to explain things!” But then I didn’t have any time. I get busy, forget the details of a particular conversation, life goes on.

But I recently read some some random internet thing off-board – not important, just a guy was being very peculiarly selective with who he was choosing to blame – and it reminded me of the light-switch analogy to give a physical form to necessary vs sufficient conditions. And then I opened the book again, and I got the WHOO!-value analogy, which was two itches at once. And it’s summer now, so I have no immediate deadlines.

And that was fucking it, man. I had to start scratching. Turned out a little longer than I wanted, but eh, that happens to me.

My theory of value is based on the Food Unit.

Basically, each day, a person has certain needs for survival. There is a certain minimum of food, a minimum of shelter, a minimum of social interaction, etc. that he requires in order to be able to survive and preserve his sanity. That daily minimum is the Food Unit. And, traditionally, the Food Unit was attained via daily labor to collect resources, to build shelter, etc. All activities, through the day, were at a 1:1 parity with survival.

If a person buys a new automobile, he is spending money which can no longer go against his basic survival. His risk of ending up in a state where he cannot support himself is raised. If a person goes to work, building automobiles, his time and efforts are being spent creating something which is not strictly necessary for his personal survival. He is not farming, building shelter, etc. He’s building something that is an adjunct of technology. His willingness to do this work is, again, at the risk of being able to achieve his daily Food Unit.

Regardless of whether you’re supplying labor or demanding labor, all labor which isn’t resource gathering and shelter building, is at the risk of the Food Unit. And that’s where the intrinsic value comes from.

Under this model, both intrinsic value and labor value are components of value. A thing has value, because a person is trading survival against it or basing their survival on it. Labor has value because that labor is at the risk of/in the name of survival.

Of course, the other interesting thing to note about the Food Unit is that, while the difficulty of achieving basic survival has shrunk over the last few hundred years, the perception of what “minimal survival” means has grown. Traditionally, it would just have meant food and shelter. Now, it includes health care, basic education, internet access, etc. The percentile of our daily industry that goes against the Food Unit is still, on the whole, a shrinking percentile of the total, but certain things are being compacted into the definition, in the popular mind, to keep it from shrinking into oblivion.

The labor theory of value isn’t the whole story, certainly…but it also shouldn’t be totally dismissed. It has (pardon the quip) value. It describes reality, in a rough way, under some circumstances.

A pile of raw parts and ingredients is less valuable than the finished product, and labor is much of what makes the former into the latter.

Anyone who says the labor theory of value describes 100% of economics is a dolt, and anyone who says it describes 0% of economics is a dunce.

(Or…if labor has no value, why do we have to pay people for it?)

Confession: I only read the OP closely until about the diamond/water paradox, firstly because holy crap! post length! but also because a solution to the ‘paradox’ immediately occurs to me - stop framing it in terms of ‘utility’. Frame it in terms of ‘desirability’ instead.

This immediately makes clear some of the reason why we have difficulty in assigning ‘real value’ to stuff - desirability can easily be socially constructed/influenced (eg, diamonds are more desirable and valuable than they used to be because Successful DeBeers Advertising Campaign) and is also quite situational. How desirable/valuable is a glass of water? Depends - is it your FIRST glass of water that day or your SECOND?

I think you’re describing the LTV wrong here. As I understand LTV and the averaging argument Marx expressed in socially necessary labor time (SNLT), the value of fabric doesn’t drop instantaneously with the invention of the power-loom, but rather decreases proportionally with the adoption of the power loom. For example, suppose there are 10 weavers who all use hand looms and can produce one unit of fabric per hour, so SNLT=1 hour. Then the power loom is invented and one weaver converts. Now 11 units of fabric are produced for every 10 hours of labor, so SNLT = 10/11 hours = 0.91 hours, only a 9% reduction. The value of fabric doesn’t get fully cut in half until all weavers have converted to the power loom.

I think you/re starting to equivocate here, using “value” as “utility” when Marx is using “value” as price. Most of the things you’re talking about here make sense when “value” is understood to mean “exchange-value”. When the power looms start getting used the “value” of the hand loom users’ products really does go down–they won’t be able to convince buyers to pay quite as much now that they buyers have other options.

Your clarification is fair. Adoption would have to be nearly universal overnight for “socially-necessary labor time” to change overnight.

But my point there was to emphasize how the definition works, the underlying mechanism of the thing. If adoption of new tech were overnight, then underlying value would change overnight. That is how it is defined, and the extreme example of overnight change helps illuminate how the mechanics of the definition work.

There is no equivocation here.

I’m not using value as utility when talking about Marx’s views. Look again at my WHOO!-value example. That’s not utility or anything remotely resembling utility, it’s just a totally made-up thing. When I talk about Marx’s notion of “value”, that is what I’m consistently treating it as: a made-up thing.

Nor is Marx using value consistently as price. They are clearly two separate concepts in his writings, though maybe the previous excerpts didn’t quite get that distinction across. Here is another excerpt that makes the point more clearly:

Value and exchange-value (Wert and Tausch-Wert) are not identical.

Value is the fact that six hours went into making a thing. Value is literally measured by labor-time, as it says just above. In contrast, exchange-value is that one coat can exchange for 20 yards of linen, to use another example straight from the source.

Value is imprinted on the good when it’s created by the amount of time it takes to create the good on average. Exchange-value is the price ratio, and for Marx the price ratio is supposed to reveal relative underlying labor values. For example, if there were a technology shift that somehow made literally everything in the economy twice as easy to make, then all goods would have literally half the value crystallized in them, because value is measured by labor-time, as it says above. But the exchange-value of a good, which is to say its relative price compared to every other good in the economy, would remain exactly the same, because the relative amount of labor that went into all them would be exactly the same.

If you read him so charitably that you contradict what he says, then he does manage to make more sense.

This is exactly why the OP was so long. This is why I started with Smith and Ricardo.

I tried to provide a bit of the historical context for what Marx was trying to do. It is absolutely correct that if it’s easier to produce a good, such that it takes only half the labor time for the same amount of output, then the price of that good is likely to drop. This is exactly why the Labor Theory of Value was accepted for so long. As Trinopus said above, if anyone has some notion that the amount of labor that goes into a product has literally nothing to do with its value, then that person has got serious problems. Relative prices definitely do reflect the relative amount of labor involved, at least to some extent. Nobody questions this.

The whole point of this thread is that Marx went well beyond that. He takes relative labor amounts as an abstract and pure definition of value – with a moral component.

The problem with relative prices reflecting only relative labor-times is not only that it’s empirically wrong, but also that he transports a huge, oppressive, murderous moral dimension on top of this whole thing. Even if we dismiss the first empirical complaint, we can’t dismiss the moral complaint. Suppose we posit for the sake of argument that the relative prices of mass-produced goods actually do exquisitely match the relative labor-times that go into them, not just a correlation as we see in this world but a perfect relationship. We can imagine a different world in which that were true. But then what of it? Would that imply that all workers were being exploited by their employers everywhere, because firms sell goods at a price in excess of what they previously paid in wages, which is inherently exploitation? No. That would not follow. If relative prices perfectly matched relative labor hours, that would be an extremely interesting empirical regularity of that world, but even so, the other necessary conditions for output (for example, capital equipment) would still exist. Marx’s moral conclusion that all firm revenues in excess of their payroll is “exploitation” – because all value actually comes from labor – would not hold.

This is the whole oddity of the thing.

That is EXACTLY the solution.

You’re right that it’s totally obvious. But we live in the 21st century, and these ideas are part of the ether. We pick them up naturally, even without an intro microecon class. It’s worth keeping in mind that there was a century after Adam Smith when people still hadn’t figured out what you just said. One reason for that is how compelling the labor theory of value seems when you don’t have an alternative. If you had written what you just wrote in 1820, with some extra commentary of course to flesh it out, you would be one of the most famous economists in history. Not a joke. But before the real solution has been stated clearly the first time, the problem is much harder than it seems. I genuinely have to wonder what Das Kapital would look like if the idea you just offered had surfaced a mere 20 years earlier in history.

It took a century after Smith, but as it happens, three different people wrote out your idea in three different countries at just about the same time. (They are three famous people. Or at least, famous for economists.) This is a little bit reminiscent of the calculus, thought up by two different people independently. Sometimes an idea is so damn ready to be born, it has to have multiple minds as its parent.

I don’t know any theory of value that denies that labor is valuable.

People pay for work because the output of that work is valuable. Naturally. But you would be the first person I heard, literally ever, who called modern microeconomic price theory a partial labor theory of value, or a 50% labor theory of value, or anything along those lines. That is simply not how it is described. A labor theory of value is a belief that relative prices are determined exclusively by labor, either direct labor as from Marx or both direct labor and indirect labor as from Ricardo. When you back away from that total determination of price by labor, it’s no longer a labor theory of value as generally understood.

But if you have some historical source that argues otherwise, I’d definitely be interested in reading it.

No. If a pile of raw parts, let’s say lumber, is worked on and turned into sawdust, it is less valuable. Value derives from the consumer’s preference for an object’s end use. Nobody has said labor has no value, just that labor does not derive from value.

Great.

Super.

But you just acknowledged that labor has value. Why do you so hastily take it back again and deny that this value is considered in economic theory? Why do you give with one (invisible) hand and take it back again with the other? If labor has value – you agree to this, yes? – then what possible economic theory would not take this into account?

You only pay for 6 things in this world. Labor, Intelligence, scarcity, land, interest and taxes.

Just chiming in to agree that I found the OP both intriguing and easy to read if not necessarily comprehend. I am tempted to see if Wealth of Nations is on gutenberg now.

Hope you like it! Fair warning, though: Lots of folks can’t get past the language, and that’s completely understandable. We just don’t write that way anymore. For me, small chunks are better than long pulls. There was a time when I was doing 15 or so minutes before bed every night.

But dude was serious genius, no mistake about it.

If you do give it a go, I’d be genuinely curious what you think of it.

I didn’t “take back” anything.

Not a single time in this thread have I denied the importance of labor value in modern economic theory. That is such a perverted and uncharitable reading of my post, I don’t know quite how to respond to it.

Modern value theory is never CALLED a labor theory of value. That is not how people speak. That is not what people say. That is not the definition that is used. Modern value theory in economics fully acknowledges that labor is valuable. Yet it is not a labor theory of value. Modern value theory is not a labor theory of value, and simultaneously, modern value theory acknowledges labor as valuable. There is no contradiction here.

If you think you perceive a contradiction in those two statements, then whatever definitions you have inside your head attached to these terms do not match the definitions in everyone else’s heads. I realize this is technical stuff, not common everyday terminology, but the people who use this language mean particular things when they use it. If you think it would help, I can speak (hopefully briefly) on the basic definitions underlying modern microeconomic theory, as compared to a labor theory of value, to outline the difference between the two ideas. But if I were to do this, I would very much appreciate you not attributing statements to me that I never said.

You are not paying for a random entity from the set of all labor. You are paying a specific value value for a specific portion of labor. Labor is not homogeneous. Some labor has 0 or even negative value.

Great post, Hellestall. I don’t have much to comment about it, but I did read the whole thing, though probably not as closely as it deserves. It’s not something I think about a lot, so I did learn quite a bit from it.

I don’t have much to contribute to the discussion at the moment but I want to thank you, Hellestal, for starting the thread and for your excellent two-part OP.

Yeah, that’s a good point.

i think intrinsic value is a function of scarcity, while subjective value (what a customer pays) would be a function of scarcity x utility to that person, if people actually knew what scarcity and utility, umm, [del]values[/del] were.

Really, price is imaginary. The whole project of trying to find real, true, fair dollar-values for items is futile nonsense. The real values are found in environmental, social & physical sciences: things like physical durability, fecundity, and reproducibility. The ability not only for you to have now but for someone to have again.