Labour Theory of Value

What is the labour theory of value meant to explain?

In the market a coat exchanges for so many loaves of bread or so many kilograms of rice. What fixes these ratios? It is tempting to say usefulness, use-value, but that will not do. As Ricardo pointed out, citing Smith, "water and air are abundantly useful; they are indeed indispensable to existence, yet, under ordinary circumstances, nothing can be obtained in exchange for them", while gold, of little use compared with air or water, exchanges for a great quantity of other goods. Utility is a condition of exchange value, but not its measure.

Water and air are abundantly useful; they are indeed indispensable to existence, yet, under ordinary circumstances, nothing can be obtained in exchange for them.

The labour theory of value answers that behind these ratios stands the labour spent producing the goods. Prices may rise and fall with supply and demand, but the centre around which they fluctuate is the quantity of labour needed for production. The idea took root with William Petty and John Locke in the seventeenth century, was systematised by classical political economy and became, with Marx, the basis of a critique of capitalism.

What did Smith and Ricardo say?

In The Wealth of Nations (1776) Adam Smith wrote: "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." He took the example of "that early and rude state of society which precedes both the accumulation of stock and the appropriation of land": if among a nation of hunters it usually costs twice the labour to kill a beaver as a deer, one beaver should naturally exchange for two deer.

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.

But Smith held that once capital and rent appear, price is made up of wages, profit and rent, and as a measure of value he sometimes put forward not the labour embodied in a good but "the quantity of labour which it enables him to purchase or command". Ricardo criticised exactly this: Smith, "who so accurately defined the original source of exchangeable value", had "himself erected another standard measure of value". Setting aside as a very small part of the market those goods, such as rare statues and pictures, whose value is determined by scarcity alone, Ricardo carried through the principle that for commodities that labour can multiply, the quantity of labour bestowed on production determines relative value.

Adam Smith, who so accurately defined the original source of exchangeable value … has himself erected another standard measure of value

How does Marx's labour theory of value differ?

In the first chapter of Capital, volume I, Marx specified that the labour that determines value is not just any labour but "socially necessary labour time": "the labour time required to produce any use-value under the conditions of production normal for a given society and with the average degree of skill and intensity of labour prevalent in it." After the power loom came to England, perhaps half the former labour sufficed to weave yarn into cloth; the hand-loom weaver still needed the same time, but his hour of labour now produced only half an hour's worth of social value.

Gesellschaftlich notwendige Arbeitszeit ist Arbeitszeit, erheischt, um irgendeinen Gebrauchswert mit den vorhandenen gesellschaftlich-normalen Produktionsbedingungen und dem gesellschaftlichen Durchschnittsgrad von Geschick und Intensität der Arbeit darzustellen.

What Marx claimed as his own contribution was the "twofold nature" of the labour contained in commodities. Tailoring a coat and weaving linen are concretely quite different and produce different use-values, but in exchange the difference is erased and both count only as the same expenditure of human labour-power, "a mere congelation of undifferentiated human labour". Marx called this distinction between concrete and abstract labour "the pivot on which a clear comprehension of political economy turns".

eine bloße Gallerte unerschiedsloser menschlicher Arbeit

There is a deeper difference too. The classics analysed the magnitude of value but never asked "why this content assumes that form", why people's labour appears precisely as the value of things. For Marx the labour theory of value was, before it was any formula for prices, a theory of the specific social form of capitalism, in which the social relations of producers working privately appear in the market as relations between things. Lenin summed it up in 1913: Smith and Ricardo laid the foundations of the labour theory of value, and "Marx continued their work"; "where the bourgeois economists saw a relation between things (the exchange of one commodity for another), Marx revealed a relation between people."

Там, где буржуазные экономисты видели отношение вещей (обмен товара на товар), там Маркс вскрыл отношение между людьми.

How did the socialist movement use the labour theory of value?

If labour creates value, why do workers not keep all the value they create? In 1820s Britain "Ricardian socialists" such as William Thompson and Thomas Hodgskin drew from Ricardo's principle the conclusion that workers had a right to the whole produce of their labour, a demand later taken up by the Lassalleans as the "undiminished proceeds of labour". Marx criticised that slogan in the Critique of the Gotha Programme and explained the gap between the wage workers receive and the value their labour creates not as an injustice of distribution but as the structure of capitalist production itself. That is the theory of surplus value.

What criticisms has it faced?

The "marginal revolution" of the 1870s, led by William Stanley Jevons, Carl Menger and Léon Walras, located value not in the objective conditions of production but in the subjective utility consumers derive from the last unit of a good, and displaced the labour theory in mainstream economics. In 1896 Eugen von Böhm-Bawerk of the Austrian School attacked what he saw as a contradiction between volume I of Capital, where commodities exchange at their values, and volume III, where they exchange at prices of production. This "transformation problem" of turning values into prices of production arises because the organic composition of capital differs between industries, and the debate continues to this day.

In the twentieth century Piero Sraffa's system showed that relative prices can be derived from physical input-output data without passing through value, which gave rise to the neo-Ricardian criticism that the labour theory is a needless detour. Among Marxists, in turn, interpretations divide over whether the labour theory of value should be read as a direct theory of price determination or as a framework for understanding the contradictory social form of labour under capitalism.