In economics, one of the driving theories that are used to explain the many complexities of production and consumption is the theory of value. Many great thinkers of the past have propounded such theories to both problematise and simplify the question of the value of economic products. One such theory is called the Labour Theory of Value (LTV).
In simple terms, the LTV refers to the idea that every economic commodity derives an economic value for itself based on the ‘socially necessary labour’ required to produce it. While its roots are actually found in pre-Marxist classical economics, especially in the works of Thomas Hobbes, John Locke, Adam Smith, and David Ricardo to name a few, the main style of this argument is reminiscent to Marxist economic thought. (Dooley, 2005)
Although Marx is popular majorly as a socio-political thinker, he has first and foremost, always been an economist. Therefore, his interpretation of a theory of value which is based on an understanding of labour, is likely to take a valuable position in the realm of economic epistemology.
Marxian Labour Theory of Value: from a bird’s eye view
Early thinkers of the LTV principle propounded a relatively simplistic understanding of labour and the way in which the final commodity produced by said labour conjures up its socially derived value. Marx on the other hand, true to his base philosophy of ‘proletariat’ or the working-class emancipation focused more on the critical questions like how the understanding of the idea of commodity itself can influence the understanding of the labour theory.
Karl Marx wanted to focus on a ‘theory of exploitation in order to interrogate the idea of LTV by Smith and Ricardo. Unlike the classical labour theory of value as derived by the latter, which stipulates that the total value of any commodity produced is derived from its required labour decided by society, Marx essentially begins by interrogating what constitutes as a commodity. (Marx, 1974a as citied in McKeown, 1987)
A Theory of Commodities
Marx wanted to explain how wealth is generated and distributed in a capitalist society and since this wealth is measured in terms of commodities, naturally, there would need to be a ‘theory of commodities.’
From a Marxian perspective, a commodity is characterised by two essential things; a ‘use’ value and an ‘exchange’ value. This means that any commodity can not only satisfy certain needs by being used, but also that they derive a societal value when used in economic exchanges. Accordingly, Marx emphasised that labour also is such a commodity, serving the same above-mentioned functions in a capitalist society.
The main point where Marx differed from his predecessors in explaining the LTV was that, while they sought to explain it in terms of individual commodities and individual members of society, Marx tried to establish a more ‘societal’ and ‘abstract’ understanding of commodity.
Going by this idea, labour itself can be considered as the starting point of any value because, it is labour that actually creates any value for any other kind of commodity, mainly by the amount of ‘labour power’ (which is abstract in nature) used in producing that commodity. (Marx, 1975 as citied in McKeown, 1987)
Challenges of the Labour Theory of Value according to Marx
For Marx, the main point of contention was that the ‘socially derived labour’ when being used to exchange every commodity, is actually bringing about the exploitation of labour. This problem is based on Marx’s interpretation of the capitalist from of production where profit and surplus act as the driving force. Marx recognised that for the capitalists, any economic endeavour that failed to yield profits or a surplus-value, was a completely pointless endeavour.
Assuming that all commodities possess a value on the basis of whose proportion their exchange takes place, it requires for one to explain the idea of surplus. In case of labour, which is a commodity by itself, its ‘use’ value creates a total amount of value which is actually greater than its ‘exchange’ value. This is not the case with other kinds of commodities.
Therefore, in this way, in order for capitalists to derive surplus and profits, they have to purchase the labour as a commodity and exhaust its ‘use’ value by using it for work. Accordingly, they also have to ensure that the value of the final result is actually greater than the exchange value of the labour. According to Kieran McKeown (1987), Marx believed that capitalists achieved this through force and duress.
Critique of Marx’s LTV
The critique of Marx’s understanding of the LTV came in two phases; one before and the other after the publication of Volume III of Marx’s Capital in 1897. The contribution to both of these critiques was derived from the works of Eugen von Böhm-Bawerk, an Austrian economist. According to him, what the Marxist understanding of the LTV failed to provide was a substantiation or ‘proof’ of the ‘theory of exploitation’ mentioned by him in the earlier volumes of the Capital. (Smart & von Böhm-Bawerk, 1890)
Many believe that von Böhm-Bawerk’s interpretation is actually divergent of the original idea that Marx wished to highlight. For example, it is believed that Marx may not have necessarily wished to come up with a proof for his theories, rather he sought to explain the contradictions in the measure of labour which Marx, for that matter was able to come up with, based on his interpretation of Smith’s work. (Garegnani, 2018) Essentially, Marx simply wanted to trace the history of the capitalist mode of production in the Capital.
Much of the labour theory of value got its lime-light due to the various contentions brought about by Marx himself as well as his critics. However, on a broad level Marx’s LTV did manage to foreground the rationale that led to the concretisation of a capitalist style of production.
Marxist economic theories have been accepted as explaining events of the social world, governed by the tendency of ‘economic determinism’. While it is necessary to acknowledge that a labour theory of value is not intrinsically a Marxist development, the role that this philosophy played in giving it a full-fledged upholstering must not be ignored.
- Dooley, P. (2005). The Labour Theory of Value (1st ed.). New York, NY: Routledge.
- Garegnani, P. (2018). On the Labour Theory of Value in Marx and in the Marxist Tradition. Review of Political Economy, 30(4), 618-642. DOI: 10.1080/09538259.2018.1509546
- MARX, K. (1974a) Capital: A Critical Analysis of Capitalist Production, vol. I (London: Lawrence & Wishart) (first written in German between 1865 and 1867; first published in German in 1869; first published in English in 1887). In McKeown, K. (1987). Marxist Political Economy and Marxist Urban Sociology. New York: Palgrave Macmillan, a division of Macmillan Publishers Limited.
- MARX, K. (1975) Wages, Price and Profit (Alternative title: Value Price and Profit) (Peking: Foreign Language Press) (first written in English and delivered as a speech, in June 1865, to the General Council of the First International; first published in 1898). In McKeown, K. (1987). Marxist Political Economy and Marxist Urban Sociology. New York: Palgrave Macmillan, a division of Macmillan Publishers Limited.
- Smart, W., & von Böhm-Bawerk, E. (1890). Capital and Interest: A critical history of economic theory. London: Macmillan & Co.