value, labor theory of

DEFINITION: The idea that the source of the economic value of a thing is the amount of labor that went into its production.

USAGE: In a general way, the labor theory of value was the original understanding of the source of economic value among the founders of classical economic theory, including Adam Smith and David Ricardo.

However, ever since the clear articulation of the subjective theory of value, developed independently in the 1860s and 1870s by William Stanley Jevons, Carl Menger, and Léon Walras, the labor theory of value has been most closely associated with the name of Karl Marx.

In his economic writings, especially Capital (1867), Marx defends the labor theory of value at great length. In many ways, it constitutes the linchpin of his entire theory of political economy.

The truth of this claim may best be seen by means of the following chain of reasoning:

Marx’s labor theory of value forms the foundation of his concept of “surplus value,” which is basically the notion of “profit” reinterpreted as rightfully belonging to the worker, rather than the owner.

The idea of surplus theory, in turn, is the basis for the claim that the system of capitalist production unjustly “exploits” the working class.

Finally, the idea of unjust exploitation legitimates the call for violent communist revolution and dictatorship of the proletariat.

The labor theory of value contains fatal conceptual flaws. A moment’s thought is sufficient to reveal that there is no necessary link between the labor necessary to produce a commodity and its economic value.

Otherwise, the uninspired but industrious artist starving in his garret would be able to command a good price for the unwanted canvases he produces with so much toil.