- 30 Oct 2012 02:06
#14093749
Here's one of my points of disagreement with not only Marx but also the classical economists (e.g. Adam Smith and David Ricardo) he used as a starting point. (Actually Marx himself never used the phrase, but did rely on the concept.)
The labor theory of value is the idea that all goods have an intrinsic value determined by the amount of labor necessary to produce them. This includes not only the labor immediately applied to create the goods but also the labor necessary to create any of the capital goods used to produce them. For example, the labor necessary to produce a pair of shoes is not only the work to sew and otherwise construct the shoes themselves, but also the work needed to produce the materials and a fraction of the work necessary to create the machines used to produce the shoes and all of the materials needed to make the machines. (The fractional value being a function of how many pairs of shoes can be produced on the machine during its lifetime.)
My problem with this idea is twofold. First, it's fine as a partial estimate of the cost to produce an item, but even for that it fails to include the value of natural capital itself, which has a scarcity-based value not determined by the labor necessary to extract it; and there is no discernible relationship between the labor-based cost of production and the sale price of the item. Second, as Marx noted, the idea is pretty useless for determining the value of labor itself, insofar as labor is not required to produce labor -- is labor then without value?
The main competing theory of value is the subjective theory which in essence says that an item is worth what a customer will pay for it. (It's a little more complicated than that but that's what it comes down to.) A modification of this theory of value lets the value vary from person to person according to how important the item is in a person's subjective evaluation.
Subjective as opposed to intrinsic valuation theory has been criticized as involving circular reasoning (since it explains price by a transaction that requires price to inform it) and may also be accused of being strictly descriptive with no predictive utility; it basically asserts an identity between price and value rather than trying to define the latter by some other criterion as is done by labor theory, marginalism, power theory, etc. and predict price on the basis of it. The problem with all existing attempts at intrinsic theories of value is that they fail empirical tests, so it might actually be better to say that the price of an item is what it is, maybe develop some points about what influences prices in a market, and treat the "value" of an item as something separate from the price and not necessarily related to it.
Subjective theories of value are typically associated with free-market ideas and pro-capital economic viewpoints, but what's interesting to me is that it's possible to use a subjective value theory to observe two different "values" of labor, one treating the labor itself as a commodity and applying subjective (i.e., market) valuation to it directly, and the other deriving the value of labor from the subjective (i.e., market) values of the goods or services the labor produces.
The second of these values is taking the labor theory of value in reverse, so to speak. Instead of deriving the value of goods from the labor necessary to produce them, one derives the value of the labor from the value of those goods. The value of the goods is determined subjectively in terms of the price a customer pays for them. The interesting thing is that one may come to a conclusion not much different from Marx's regarding the intrinsic underpayment of labor inherent in capitalism by this radically different route.
Here's how that would work in specific.
First, we have a market value of labor that consists merely of the prevailing average wage for a type of work at any given time.
Second, we have a productive value of labor that consists of the market value of the goods produced by labor, less all non-labor costs of production. (In this case there's no need, as there is in applying the labor theory of value, to extract the labor necessary to produce capital goods; we may merely use their monetary costs.)
Both of these valuations of labor are ultimately subjective, the first directly and the second because it depends on the subjective valuation of the goods produced by labor.
In a capitalist economy, the market value of labor is always LESS than its productive value, as the investor depends on selling the goods for more than is paid in total production costs to generate profit. If it becomes necessary to pay as much (or more) for the labor to produce goods than the net market value of those goods, it is impossible to operate a business at a profit.
Moreover, in a capitalist economy there is an incentive to increase the differential between the market and productive value of labor whenever possible, and this leads to the shortfall of consumer demand that is an endemic problem in a capitalist economy.
So we end up in roughly the same place as Marx arrived by a different route, but through subjective valuation based entirely on market values.
The labor theory of value is the idea that all goods have an intrinsic value determined by the amount of labor necessary to produce them. This includes not only the labor immediately applied to create the goods but also the labor necessary to create any of the capital goods used to produce them. For example, the labor necessary to produce a pair of shoes is not only the work to sew and otherwise construct the shoes themselves, but also the work needed to produce the materials and a fraction of the work necessary to create the machines used to produce the shoes and all of the materials needed to make the machines. (The fractional value being a function of how many pairs of shoes can be produced on the machine during its lifetime.)
My problem with this idea is twofold. First, it's fine as a partial estimate of the cost to produce an item, but even for that it fails to include the value of natural capital itself, which has a scarcity-based value not determined by the labor necessary to extract it; and there is no discernible relationship between the labor-based cost of production and the sale price of the item. Second, as Marx noted, the idea is pretty useless for determining the value of labor itself, insofar as labor is not required to produce labor -- is labor then without value?
The main competing theory of value is the subjective theory which in essence says that an item is worth what a customer will pay for it. (It's a little more complicated than that but that's what it comes down to.) A modification of this theory of value lets the value vary from person to person according to how important the item is in a person's subjective evaluation.
Subjective as opposed to intrinsic valuation theory has been criticized as involving circular reasoning (since it explains price by a transaction that requires price to inform it) and may also be accused of being strictly descriptive with no predictive utility; it basically asserts an identity between price and value rather than trying to define the latter by some other criterion as is done by labor theory, marginalism, power theory, etc. and predict price on the basis of it. The problem with all existing attempts at intrinsic theories of value is that they fail empirical tests, so it might actually be better to say that the price of an item is what it is, maybe develop some points about what influences prices in a market, and treat the "value" of an item as something separate from the price and not necessarily related to it.
Subjective theories of value are typically associated with free-market ideas and pro-capital economic viewpoints, but what's interesting to me is that it's possible to use a subjective value theory to observe two different "values" of labor, one treating the labor itself as a commodity and applying subjective (i.e., market) valuation to it directly, and the other deriving the value of labor from the subjective (i.e., market) values of the goods or services the labor produces.
The second of these values is taking the labor theory of value in reverse, so to speak. Instead of deriving the value of goods from the labor necessary to produce them, one derives the value of the labor from the value of those goods. The value of the goods is determined subjectively in terms of the price a customer pays for them. The interesting thing is that one may come to a conclusion not much different from Marx's regarding the intrinsic underpayment of labor inherent in capitalism by this radically different route.
Here's how that would work in specific.
First, we have a market value of labor that consists merely of the prevailing average wage for a type of work at any given time.
Second, we have a productive value of labor that consists of the market value of the goods produced by labor, less all non-labor costs of production. (In this case there's no need, as there is in applying the labor theory of value, to extract the labor necessary to produce capital goods; we may merely use their monetary costs.)
Both of these valuations of labor are ultimately subjective, the first directly and the second because it depends on the subjective valuation of the goods produced by labor.
In a capitalist economy, the market value of labor is always LESS than its productive value, as the investor depends on selling the goods for more than is paid in total production costs to generate profit. If it becomes necessary to pay as much (or more) for the labor to produce goods than the net market value of those goods, it is impossible to operate a business at a profit.
Moreover, in a capitalist economy there is an incentive to increase the differential between the market and productive value of labor whenever possible, and this leads to the shortfall of consumer demand that is an endemic problem in a capitalist economy.
So we end up in roughly the same place as Marx arrived by a different route, but through subjective valuation based entirely on market values.
- By Pants-of-dog
- By Tainari88
- By Rancid