Wednesday, March 14, 2012

Death to Labor Theory of Prices, err....Value


Marx and the Labor Theory of Value

Death to Karl Marx. Well, just couldn't happen anymore. Mr. Marx has been dead for so long. But the socialism doctrines he espoused are well and alive today. One thing in particular is the Labor Theory of Value (LTV).

Labor Theory of Value, as opposed to Subjective Theory of Value, tells that the value of any commodity depends only on the amount of effort or labor employed in the production or preparation of the commodity. Of course, the amount and cost of raw materials and machinery is accounted as necessary contributor to the value of the commodity produced. This doesn't contradict Marx theory at all since the raw materials and the machinery must have undergone through some prior labor, the same nature of labor he was talking in the theory itself. In this sense, the labor done is to be taken as the sole contributor to the value of the commodity produced. At least this how Marx tried to explain it. 

An apple drops from its tree. According to LTV, the apple only starts to accumulate value the moment an apple-picker walks to it and picks it up. Picking up an apple contains an effort or labor thus adding a value to it. Based on LTV, same thing is true for all commodities produced.

Which brings me to the question: If the value of commodity only depends on the labor that produced or prepared it, where does labor gets its value from? Marx also answered it. Labor must be treated like any other commodity produced. Meaning, labor did not exists on its own. It has undergone some accumulation of value like the effort to learn, practice and its maintenance. Marx called it the value of labor. So, the value of a commodity depends on the value of the labor, a labor which was also dependent on past efforts to acquire it. In Marx's term, the value of labor is to be appropriately called the value of laboring power. "The value of labouring power is determined by the value of the necessaries required to produce, develop, maintain, and perpetuate the labouring power" was the exact word of Marx.

I want to re-state Labor Theory of Value in this way: The value of commodity depends on the value of the labor or the value of the laboring power, a value which is necessarily dependent to the past value of efforts to come-up with such laboring skill.

Aha! There it goes. Something is amiss with LTV, isn't it? I think that is the big problem for LTV. If we keep digging further, with the goal to locate the root from where all value of goods could originate, it will take us to the forever beginning of all things Perhaps as primitive as the time when the snake labored his way to the garden and enticed Eve to eat the forbidden fruit. Or maybe infinitely earlier than anything.

The problem of LTV is already apparent. If the the origin of value assignment  is to be traced diligently, nowhere we can arrive to a concrete spot that shows there it is. By any effort, we can only come to a  place of more and more abstraction of the term called value. Abstraction can only mean one thing. An idea, an impulse, a gut feeling of something that can't be numerically represented. We can only come to a place where every economic phenomena, including the idea of commodity value or labor value, must have originated only from subjective point of view.

The Apple Problem

As LTV tried to relate, an apple has no value until a labor, like picking it up, is done. This must be a mistake like putting the cart ahead of the horse. The value of the apple is already there inherently, that is why the apple-picker had the motivation to exert an effort, a labor, to pick it up. If the apple has no value, then there should be no reason for the apple-picker to pick it up at the first place.

If LTV is to explain the valuation in terms of the amount of effort spent on the preparation of the commodity, then it is not dealing with value at all. It must be dealing merely with prices. Value is not the same with price. If price is the same as value, then no matter what circumstances we have, choosing between Gold and apple, anyone would always grab the Gold first. But, obviously, this is not true for a starving man in the desert.


The failure of the LTV to anchor itself on a stand-alone proposition, an axiom, renders the theory futile at serving the purpose of explaining the nature of economic value. Laughably, LTV can only regress up to the base root of the same theory it zealously tried to defeat - the Subjective Theory of Value- which states that the value of any commodity, including labor, depends on the perception, which is based on the self-felt need of an individual. LTV based itself on the value of labor which of course a value based on an earlier value and on another much earlier value of something. From the earliest time, therefore, the value of labor must necessarily come from a subjective point of view, the very same idea that LTV tried to dismiss.

If Labor Theory of Value is to survive, it can only do so it if it agrees to be renamed as Labor Theory of Prices, which of course a joke theory if that's the case.
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