Basically it is nonsense.
Is this statement true?
We value shoe shiners because we value shiny shoes. We don’t value shiny shoes because we value shoe shiners.
I think you answered the question for yourself!
The labor theory of value posits that the value of goods on the market is determined by the quantity (and in some sense, quality) of the labor provided in the manufacture of the good.
In this sense, a pair of shoes which requires an expert shoe-maker 2 hours to make has the same value as heart surgery which requires an expert cardiologist 2 hours to perform.
This system fails on both an empirical and theoretical basis.
How do compare like goods made with different processes? Would the same shoe, made at two different rates, have the same value or different values? How would we compare them? How can we price used items?
The labor theory of value ignores the role of loss in the profit-and-loss system. Under the labor-value system, there is no loss, and thus no way to direct resources to their most necessary ends.
Oh, and the wikipedia article on the labor theory of value needs some serious attention.
It reads like a forum argument between an Austrian and a Marxist rather than just an encyclopedia entry.
That’s not how it works. Goods are valued according to average socially necessary labor time, not actual labor time, and a surgeon’s labor time is worth more than a shoemaker’s.
Socially necessary? lol
Who gets to decide that for everyone else? You, I suppose?
As I understand it, the basic concept in the labor theory of value is that man-hours are fungible. A pair of boots is worth 30 hours of wages because if I had to make my own boots, it would take me 30 hours, assuming I had been born under the same star as someone who learned a skill like bootmaking. And when new means of production make the price go down to 5 hours of labor per pair, then the bootmaker still earned the same amount of money. Meaning the value of the means of production is counted for the laborer, not the capitalist. It is a muddled way of attempting to objectify value in terms of labor-worship. It can also be used to disprove all sorts of communist ideas. For example, the amount of time it takes me to hire a worker is about 15 minutes if I want to put an ad in the paper. So no worker should be worth any more than about a quarter hours wages. Now, if I were to build a lathe or any other machine tool, it would take me about a year, working by myself. So if I structure my company where the workers are independent contractors, and they rent-to-own the means of production, because I am a syndicalist at heart, and they pay me this rent in products, well then I am up to my eyeballs in parts and the labor still works his ass off for a pittance. The most important means of production in many firms is the capitalist. Since the communists completely ignore her contributions, and they consider humans to be fungible, we can classify her as a means of production that took 40 years to produce. Obviously the amount of labor involved is far more than other products, therefore her value is much higher.
The easiest way to disprove the labor theory of value is to establish tha value is subjective and cannot be objectively calculated. Try selling oxygen to a man trapped in an airlock…who is suicidal.
Yes
Bingo. Look at it this way. I just saw an episode of Pawn Stars yesterday. A guy brought in a glass sword that he spent 3 years working on. The pawn shop owner ended up not even making an offer on it, because he knew there was virtually no market for it…no one would want to buy it. It makes no difference how long the man spent making it, and how much work and skill went into it. That doesn’t make it worth anything. Not only that, but it is considered the only one of its kind. It’s as rare as things come. And yet it’s still not worth anything to a reseller.
Input labor does not determine the value of a product. Not even does rarity determine the value of a product. The only thing that determines value is the subjective notions of an owner and those of a potential buyer.
There was actually a Mises Daily about this:
“Socially necessary” means the amount of time, with current levels of technology and an average laborer, that is necessary to make a product. It isn’t decided by anybody, it’s ultimately market competition that determines goods are not worth more than their socially necessary labor time. Thus it can be seen that the actual labor it takes to produce something is not necessarily the same as its value–if I take a week to make a bicycle that it takes a factory 30 minutes to produce, the value of the two bicycles is still exactly the same.“Labor time” is an abstraction, the labor of a surgeon produces as much value in an hour as the labor of an unskilled laborer produces in, say, 20 hours.
There is a basic confusion here. Marx does not claim that anything someone spends time on has value. Of course we “value” shoes because they protect our feet (etc.) not because someone made them, but that’s not the sense of “value” Marx is using. The question is, why do these shoes cost 30 dollars, rather than 30,000 dollars, like a car does? I’d rather do without a car than do without shoes (of course perhaps not everyone will agree with this) so why does a car cost more than shoes? This has nothing to do with how much I “value” each item, it’s (partially) determined by the cost of producing each item.
A product that nobody will buy has no value. Unless value can be realized on the market, it doesn’t exist. In the case of items that don’t sell, but others of their kind do–a glut on the market—we might say they have “unrealized value,” because in that case the total value is spread over more products and the price falls to below value for each individual product. In other words, in that case the products go towards making up the total value of available products of that kind. In the case of a glass sword nobody wants, however, on the basis of Marx we could safely say it has no value whatsoever, no matter how long it took to produce it.
You just got though telling us that what you’re willing to pay “has nothing to do with how much you ‘value’ the item” (I would love to hear an explanation of that), and that “it’s (partially) determined by the cost of producing each item.”
If both of those things are true, why is a sword that cost 3 years worth of labor not worth anything?
When you’re starting out, the most important thing to know about Marx’s labor theory of value is that Labor =! Price. He’s not saying that. It’s about how the product of the total sum of the fruits of humanity’s labor at any one point are distrubuted. There’s some good in there, but his justifications for crisis, the immiseration of the worker, and the accumulation of capital are entirely mislead.
How would one use LTV to calculate the value produced by an average surgeon smashing up an average car with an average hammer for one hour?
In order to have value, an item must be “valued” by someone, in other words someone must be willing to by it. Again, there are two senses of the word ‘value’ here–if nobody will buy something, it has no value. But if the only reason cars cost 30,000 dollars is that people want them, competition would eventually drive the price much lower. Marx’s sense of value is as a limit that prices fluctuate around. It is the number that, if competition drove the price too far below, the seller would not make money, and if the seller tried to charge too much above, competitors would undersell him thus driving the price back down toward the value of the item.
The fact that somebody spends a lot of time on something does not give it value. Society as a whole, through the individual choices made on the market, decides what has value and what does not. The price of something is not identical to its value (or is only rarely and, as it were, by accident), but value limits the fluctuations of price.
- The fact that somebody spends a lot of time on something does not give it value. Society as a whole, through the individual choices made on the market, decides what has value and what does not. The price of something is not identical to its value (or is only rarely and, as it were, by accident), but value limits the fluctuations of price.
To sum this up, Marx claims that “price” fluctuates around equilibirium based around labor. The problem here is that he ignores time, and how goods and labor are affected by it. It’s not only labor that factors into the costs of items (that determine this alleged equilibrium), but time preference.
This is on of Bohm-Bawerk’s criticisms. Imagine that it takes an average of five years for a man to produce a steam engine from scratch. That is, mine the ore, construct a forge, smelt the steel, etc. All the labor contributed to turn raw nature into a steam engine, from top-to-bottom. If the man labors for five years and comes up with a steam engine, he and only he is entitled to the revenue from its sale. There’s no boss, no capital to be paid for, etc.
Now lets say instead that someone comes up to him and says “Hey, I know you’re building this steam engine, and I’d like to buy it from you when you’re done, how about I pay you in one-year increments, and I get a discount?” That way, the laborer doesn’t have to wait five years to get any return on his work, and the “capitalist” (in this case) gets a cheaper steam engine down the line, at the expense of enjoying his own money in the interm. Lets say then, that after a year, the laborer, for whatever reason, decides to stop building the engine after the first year, and transfers whatever materials he has generated to the capitalist in exchange for the first year’s pay.
Now, what is the laborer transferring to the capitalist, and what “should” he be paid. With a pure labor theory of value, he should be compensated for 1/5 of a steam engine. However, that’s not what the laborer is transferring to the capitalist. He’s not giving him “1/5th of a steam engine”, ready for sale at market. He’s giving him 1/5 of a steam engine that will be ready for sale in four years. This is exactly why you can’t use current sale prices to calculate how much a worker “should” be paid for their time. It really must come down to individuals negotiating.
Actually, Marx allows for the fact that things appreciate and depreciate in value over time. If new technologies are developed within the 5-year period that make manufacturing a steam engine cheaper and/or quicker, the 1/5 of a steam engine will only be worth 1/5th of a steam engine’s current value (at the time when it is finished), regardless of the amount of labor it took to make it. So there isn’t really a difference if the laborer sells after a year or keeps working–in either case there is the danger that the value of steam engines will drop and the laborer will not be compensated adequately for his first year’s labor (or, if he sells to the “capitalist,” the latter is just assuming the same risk).
That is literally the exact opposite of what you said earlier. You said what you’re willing to pay for something “has nothing to do with how much you ‘value’ the item” In other words, it doesn’t matter weather you will buy it or not…it’s value is “(partially) determined by the cost of producing each item.”
I always wondered how people could rationalize something so nonsensical. Now I know. Doublethink.
The problem:
No one only old school Communists view the labor theory of value as anything that can be useful in the sense of economic calculation, and they’re incredibly wrong. Most modern proponents view it as a sociological or ethical theory rather than a concrete tool for economic predicition. If you’re trying to make economic predictions with LTV, you’re going to be quite lost.
What I said was that the reason a car costs 1,000 times more than a pair of shoes has nothing to do with how much I subjectively “value” it, in other words if I could make and sell a car for 30 dollars and still make money I would do so and undercut the competition. But somebody must find a car important enough to pay 30,000 dollars for it, there are plenty of things I could make that I’d have to sell for 100,000 dollars in order to make money but nobody would buy them, so nobody makes them. The fact that a car costs 30,000 is not determined by how much I, as a buyer, subjectively “value” a car, but by the fact that I couldn’t sell it for drastically less and still make money. If the subjective “value” of a car to the average buyer was 30 cents, cars wouldn’t sell for 30 cents, they wouldn’t sell at all. That is the distinction I am making.