Talk:Labor theory of value
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Some practical examples of LTV in the real world would help. Historical examples of systems implementing this theory, and the economic effects that followed.
20 Mar 2005
in the interpretation that I expressed in the last section of the entry, there is no simple practical example, unlike the usual "labor theory of price." The latter theory works pretty well for dynamics, by the way: relative prices will usually track the relative labor content of the respective commodities.
No known economic system follows my interpretation. It's a method of understanding a commodity-producing society more than anything else.
If people insist, I could elaborate on my interpretation more. The price of a commodity is akin to its "private cost" while its value is akin to its "social cost." In neoclassical economics, the contrast between private and social costs is called an "externality." In Marxian political economy, the contrast helps explain exploitation, economic crises, and change. Jim 22:13, Mar 22, 2005 (UTC)
This article is almost impossible to understand for the layman. For example, how does the use of technology increase the value of a product? The article states this because it says that the labor used to produce the technology must be included in the value of the end product. Ok, but what if the total amount of labor used to produce the technology is less than the amount of labor that is saved by using the technology (think computers). Doesn't that DECREASE the value of the product?
Also, how can 1 hour of work to produce something always equal 1 hour of work to buy something? Aren't some worker's hours more productive than others? What about specialists whose training allows them to do a particular job, while an unskilled worker could not perform that task?
I'm sure that Marxism addresses these issues, but this article however, does not. Please change it to use less Marxist terminology, and come up with examples that describe how the theory works in a way that peoeple without experience in Marxist economics can understand.
- In defense of all the talk of Marxism, only Marxist today believe in this theory, and hence, the only reason to understand is if you need to understand Marxism. :) Regebro 20:16, 26 Sep 2004 (UTC)
Is "intrinsicism" economics jargon? See http://www.dictionary.com/cgi-bin/dict.pl?term=intrinsicist
I have never heard the word from anyone other than followers of Ayn Rand. --LMS
The word appears, but rarely, in the philosophical literature, I think.
Two examples I found on the web:
However, the correct jargon here is 'intrinsic value theory', so I changed it.
Other examples of 'intrinsic value theory', besides the labor theory of value, would include various forms of environmentalism, and at least one theory (not of any repute, I think, but I did read it somewhere) that the 'real' value of any thing is the amount of energy it took to produce it.
The historical materialism page has a better explanation of the labor theory of value than the labor theory of value article, it seems. Ed Poor
- That page has no explanation of the Labor theory at all; I have no idea what you're talking about. --LDC
Some mention ought to be made of Marx's use of his theory of surplus value, which he derivied from his version of the labor theory of value, in justifying violent revolution. Marx spoke of "capitalist guilt" and justified revolution of the working class against the "ruling class" of capitalists, on the grounds that capitalists were stealing the value of workers' labor. Marx ascribed no value to capital, technology, innovation, leadership, etc., but claimed that 100% of each worker's production belonged to the worker: any surplus resulting from, say, a factory selling the fruits of his labor is the precise moral equivalent of theft. Ed Poor
- Ed, Marx did ascribe value to capital. According to Marx, the value of capital is the amount of labor required to produce it. Nor did he argue, AFAIK, that managers, entrepeneurs, innovators, etc. did no useful work, or didn't deserve any pay. As I understand it (and I warn you I have never read much Marx--Das Capital was too boring), his argument was simply that they were being paid a lot more than they deserved to be--that one hours work as a manager deserved no more pay than one hours work on the factory floor, not the tens or hundreds of times more pay that managers get in practice. -- SJK
I was interested by Ricardo's reductio ad absurdum argument given in the article.
The argument certainly seems logically correct, but I think the conclusion drawn is too sweeping. I would have thought a better conclusion would to be: for the labor theory of value to hold, the rate of profit should be zero. My understanding of, say, Marx is that he believed the rate of profit would indeed tend to zero, leading to his 'crises of capitalism'.
I'm not much of an expert at all on this, which is why I haven't changed the page, but I think this aspect of the argument deserves looking at. Enchanter
- awhile back, I added the stuff about when prices directly correspond to value (the simple labor theory of price). One case is where the rate of profit equals zero.
- I think that Marx may have seen prices not equalling values as a temporary situation and that in the end (when capitalism goes away), they will be equal. But I'm not very sure he believed that, so I've left it out. Jdevine 17:42, 28 Aug 2004 (UTC)
The example given probably isn't the best refutation, since you correctly point out that it fails when profit is zero. But there are many, many, other reasons why the labor theory of value fails and is no longer taken seriously by any economist, not the least of which is the obvious superiority of economic subjectivism in producing models that actually work. --LDC
- It's important to define what is meant by "the labor theory of values fail[ing]." In my additions to this entry, I distinguished between two different types of "labor theory of value" -- which imply two different kinds of "failure". I would agree that the "labor theory of value" fails as a theory of price (the labor theory of price) and I think Marx would agree, since he wasn't very interested in price theory (leaving it to volume III). I don't think he saw it as failing as a theory of society, however. That's the "alternative theory." Jdevine 17:42, 28 Aug 2004 (UTC)
Profit is non-zero in the real world. Is this because profit corresponds to the interest paid on invested capital? Let's see... to give an analogy between equity and debt, an investor in effect "loans" a company capital, and the company pays "interest" for the use of the capital in the form of profit.
Or am I (as usual with respect to the social sciences) talking out of my rectum? --Damian Yerrick
- Marx was trying to explain why profit -- or rather "normal" profit -- was non-zero in the real world. He was trying to explain, among other things, why interest was positive, non-zero. He looked a structural explanation, the exploitation of labor. Because workers work beyond the time necessary to pay the cost of their wages, there is positive profit (surplus-value). Jdevine 17:42, 28 Aug 2004 (UTC)
At the top of this page, I'm told that LTV is "obsolete". Since many people all over the world are still using LTV in their analysis of political economy, I thought that this was not a neutral point of view, so I editted that word out. The end of the first paragraph says "Much of Western economics turned away in the 1870s from theories of objective value and towards the economic subjectivism associated with the development of neoclassical economics". This conveys that better, that in certain places (the West) at a certain point (in the 1870s), LTV and like theories became more of a minority opinion in the economic discourse of economic specialists. In other words, it says some people think it is obsolete, which is a neutral statement, instead of saying that it is obsolete, which is not neutral.
I also felt that saying it was used to justify private property was too specific a statement. Marx certainly didn't think so! So I made that statement more vague, that it was used to justify attitudes towards property relations. The next statement restates Locke's private property justification anyhow.
I will probably be revisiting this page and doing further edits. I think the way to remain neutral is less to take a side of an economist on the "definitive" truth about the LTV, but to simply state what they say. Here is what Locke thought, here is what Ricardo thought, here is what Marx thought, here is what Eugen von Böhm-Bawerk thought, and so forth. --Lancemurdoch
I have tweaked how marxian value theory had been treated unequivocally as a subset of classical labor theories of value. This treatment is certainly the majority view, probably among marxists as well as their critics, but is nonetheless contested. My revisions permit the possibility of the minority view.
Summary: By some accounts, marxian value theory does not locate value-formation at the level of concrete labour-time units, but as an abstract social relationship. Marx explicitly establishes 'socially-necessary labour time', - not 'labour time' itself - as the unit he believes he is studying in Capital I, and rejects Ricardian definitions of labour values for failing to account for this particular socialised *form* of production. His discussion of 'forms' is somewhat Hegelian in character, and perhaps for this reason has largely been ignored in the work of Sweezy, Bortciewicz and other 'transformation problem' critics.
While there, I also tidied up some of the 'ratio' stuff which seemed slightly muddled and inaccessible.
- Adhib
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I find this comment in the article a bit puzzling: "Strangely, Locke mentions the hiring of "servants" by the landowner without wondering why some or all of the product of their labor belongs to them rather than to the landowner."
Clearly, the hired servants are being paid wages in exchange for the fruits of their labor. Seems quite obvious to me.
Locke presumes private property already exists. If the servant mixes his labor with Locke's property, why doesn't it become the servant's? Now you may have an obvious answer, but Locke seems not to have thought about it at all. (He was not a deep thinker, unlike, say, Thomas Hobbes.) Jdevine 16:56, 29 Jul 2004 (UTC)
Adhib added the following to this entry: "According to some commentators, this modification is profound enough to support the claim that Marx's theory is not, after all, a labor theory of value, but a new type of value theory entirely. Marx goes to some lengths in the first chapter of Capital to spell out the significance of three aspects of value - its substance, magnitude, and most misleading of all, its form. His theory would therefore seem resistant, at least, to reduction to just one such aspect, the magnitude, typically thought of as a number of labor hours."
Is it possible to explain this a bit more, linking it up with the rest of the entry? Jdevine 16:56, 29 Jul 2004 (UTC)
- Have done a bit more work there. Does that help, or complicate?! Adhib 19:02, 15 Sep 2004 (UTC)
Some simpler critiques
Okay, some less involved but just as sharp critiques.
"Dig a hole, fill it in again, where's the value" -- defeats naive version of the theory.
"Only socially necessary work counts, socially necessary work is work that produces value, so value-producing work produces value?" -- defeats the the fancier form by reducing it to a meaningless circularity.
- Comment: there _is_ a circularity to Marx's conceptions. Much of his "theory of value" might be seen as a tautologically-true accounting framework. However, economists have always seen such frameworks as useful. (And tautology is very common in economics: utility maximization seems to be tautologically true.) But given Marx's historical materialism, his choice of which tautologies to use makes sense. In the end, it's how one uses tautologies that justifies (or doesn't justify) their use. Jdevine 17:13, 25 Aug 2004 (UTC)
- The problem is justifying a revolution on grounds that are circular. If I'm going to take to the barricades, I'd like a better reason for doing so than anything of the form, "a is true because of b, and b is so because of a." Furthermore, offering such circularity as a reason for, say, liquidating the kulaks is worse that a logical flaw. It is a moral flaw. --Christofurio 15:02, Aug 28, 2004 (UTC)
- I believe that Marx's justification of revolution wasn't logical as much as empirical. His theory was aimed at helping people understand empirical reality. Even if the "labor theory of value" had been "logical" in the Aristotelian sense of the word (which it wasn't and wasn't meant to be), it wouldn't have justified anything revolutionary or otherwise. The validity of this kind of (deductive) theory depends on the empirical validity of its premises and implications.
- In any event, the point of the entry is to portray the concepts as clearly and rationally as possible rather than rejecting or accepting them. It's up to the reader to make the latter kind of decision. Jdevine 17:42, 28 Aug 2004 (UTC)
- Marx of course would have regarded the notion that his theories have nothing to do with justifying revolution as the harshest of criticisms, not as explication. ("...the point, however, is to change it.") But let's talk about utility maximization, which you clearly regard as an analogous tautology.
- The idea as the Austrians understood it was to watch the margins. If I have five beers this evening, the first will be veeeery refreshing. The second probably won't taste as fully satisfying as the first, and the fifth (or so!) will have a marginal utility of zero. So that's where I'll stop drinking. Now, it is open to you to say that this is a tautology -- "you'll stop drinking when the next beer no longer tempts your appetite? Tautology!" -- yet there is an empirical nub to it. The idea is built upon general psychological and indeed physiological facts about the fact of satiation. IMHO its not as empty as the LTV, if the latter is interpreted so as to be irrelevant to real-world prices. I'm not making an argument for changing the entry, BTW, just pursuing the "simple critiques" suggested here by one of our fellow editors. --Christofurio 20:53, Aug 28, 2004 (UTC)
>>>>> It's not that "his theories have nothing to do with justifying revolution". Rather, the theories are merely helpful. It's the capitalist _reality_ that Marx objected to. The theories help understanding of that reality.
>>>>> the marginalist theory you apply doesn't say anything about the crucial physiological and psychological facts behind your choice. Because of that, it's empirically empty. In fact, the only way economists can tell what makes you happy is to look at what you actually consume (what's called the theory of revealed preference), which makes the theory circular, tautological.
>>>>> BTW, the marginal theory assumes among other things that your tastes don't change, which of course they do since you're drinking so much. If tastes are allowed to change, then the marginal utility theory predicts absolutely nothing. Absolutely any behavior can be explained after the fact. Jdevine 21:04, 28 Aug 2004 (UTC)
- I think this is a mischaracterization, but I won't pursue it here. A more appropriate venue is the entry on marginal utility, where I see you've already done some work. See you there soon!--Christofurio 18:31, Aug 29, 2004 (UTC)
>>>>> I start teaching again tomorrow. I'm bowing out, except sometimes on weekends and evenings. Jdevine 00:51, 30 Aug 2004 (UTC)
"A man works for an hour purifying drinking water. What is its value to a man stranded in a desert? What is its value to a man stranded in a flood?" -- attacks the idea of value independent of context.
- Comment: this refers to "use-value," which differs from Marx's concept of value or exchange-value. But it's true that the (Marxian) value of a commodity does vary with context. One context where it doesn't apply is outside of society, i.e., when dealing with an isolated human. Marx's theory is one of society, specifically commodity-producing society. Jdevine 17:13, 25 Aug 2004 (UTC)
"I have a dollar, you have a loaf, the price tag says $1. If their value was the same to me, why would I bother to buy? If their value was the same to you, why would you bother to sell?" -- attacks the notion of a single value independent of the valuer, and hence the notion of price == value. The countercase ("I value the loaf more, you value the dollar more, so we trade") shows that both parties make a subjective profit on any free transaction, and therefore "profit exploitation" is bunk.
- Comment: In my "alternative" view, the idea that individual price = individual value is rejected. That is, Marx's "labor theory of value" isn't a "labor theory of price." Jdevine 17:13, 25 Aug 2004 (UTC)
Interesting points. What do you think of the example of a cask of wine? I've discussed it in my article on John Ramsey McCulloch. --Christofurio 15:22, Aug 23, 2004 (UTC)
Summary of the wine question: "wine put aside increases in value, from whence came the increase?"
My answer: people simply prefer the older wine, and are thus prepared to pay more for it (relative to the prices of other things). This is illustrated by "snob value", where it takes a pro to even notice the slight flavor improvement.
As to the question of the guy who sets aside the wine, where does his profit come from? From the entrepreneurial activity of finding ways to improve things (in the opinion of others) and thus increase their resale price.
So wine improving by itself is an example of the subjectivity of value, and our investor in improved wine demonstrates that profit is genuine ex nihilo wealth creation (where "wealth" means: aggregate subjective quality-of-life).
- Comment: the aging of wine refers to the creation of "use value," not value in Marx's sense of the word. But Marx didn't deny the role of entrepreneurs. A businessperson who introduces a lower-cost method of production gets a higher profit than do the others (Marx's example in volume I of CAPITAL). Similarly, introducing a new product might give someone a high profit. Marx's point, however, is that when looked at from the point of view of society as a whole, in order for anyone to get any profit at any given point in time, some workers have to work beyond the labor-cost of their labor-power. Jdevine 17:13, 25 Aug 2004 (UTC)
- That point isn't established unless the LTV has some non-tautological significance, and the example of wine is one of many that indicates it doesn't. --Christofurio 15:02, Aug 28, 2004 (UTC)
- Even if the "LTV" has a lot of non-tautological concepts (as neoclassical economics has its tautological concept of utility maximization), that doesn't mean that it has only non-tautological significance. The system of National Income and Product Accounts in macroeconomics is tautological (definitional), as is all accounting. But that doesn't mean that these have nothing but tautological significance. Jdevine 17:42, 28 Aug 2004 (UTC)
- It has non-tautological significance if it has some value in understanding price movements. Otherwise, it may be a moral imperative introduced into economics from outside. I suspect that Marx himself wasn't sure which. --Christofurio 20:53, Aug 28, 2004 (UTC)
>>>>> The "moral imperative does come from Marx's sense of ethics (which he didn't develop, since he wasn't an ethician). His major ethical view in CAPITAL concerned the contrast between theory and practice. While the "bourgeois political economists" said capitalism was a realm of equality and freedom, Marx pointed to the reality of inequality (in distribution and power) and unfreedom (in production). In effect, instead of developing a full moral critique, Marx lambasted the economic thinkers of his day for hypocrisy. Jdevine 00:51, 30 Aug 2004 (UTC)
Bohm-Bawerk
The treatment of B-B seems third hand. I'll work on getting it right when I have the time.
Ah, there! much better, IMHO. --Christofurio 20:36, Aug 23, 2004 (UTC)
Jdevine, this isn't "minor editing"!
"Marx might respond that this did not contradict his understanding of prices, in which sectors of the economy which have higher "capital intensity" (greater roundaboutness) have higher prices, in order to give capitalists there the same profit rate as in other sectors (see below). The difference, it seems, between Marx and Böhm-Bawerk concerns perspective: for Böhm-Bawerk, roundaboutness justifies all entrepreneurial profits, whereas for Marx, it justifies only those profits of the more capital-intensive operations, which represent redistributions from less capital-intensive ones...."
It's absurd. B-Bawerk spoke of entrepreneurial profit only to distinguish it from what he called "originary interest." A trust fund baby can get originary interest without ever doing anything entrepreneurial. Both are "justified" in the sense that they help send information through the price system and redirect incentives (such as the incentive to minimize financial risks by hedging investments) but they are different. And how is this a difference of "perspective"? What does that mean? Are there some differences that are perspectival and others that aren't? Furthermore, it isn't obvious that roundaboutness correlates with capital intensity, or that relative capital intensity deserves any moral judgment one way or the other. --Christofurio 03:30, Aug 24, 2004 (UTC)
To the extent that "capital intensity" can be measured at all (and strictly speaking, it can't, as noted in the entry on the capital controversy), it's highly related to roundaboutness. If an "entrepreneur" engages in a roundabout process, that involves tying up a lot of capital in a fixed form for a long time. Relatively high fixed capital = capital intensive. I also changed the discussion of the differing perspective. (NB: I try not to characterize B-B's point of view, since I am not an Austrian. Sometimes I have to, but I hope that people correct my characterizations.) Jdevine 03:38, 24 Aug 2004 (UTC)
Your latest version is an improvement, and I especially like the reformulation on the issue of external costs. That's a VERY large issue, which would be a terrible tangent here, and is better finessed, or a lot of editors could end up expending a lot of labor time in a socially useless manner. I appreciate your open-mindedness. --Christofurio 03:47, Aug 24, 2004 (UTC)
I have shortened the article severely. I hope it's coherent. Jdevine 23:46, 28 Aug 2004 (UTC)
Restructure?
I'm finding this article heavygoing, with too few landmarks or recognizable cyc features for the reader to get his bearings. Instead, we meander through several of the incarnations of the theory, critiques of some or all versions, and various responses to those critiques. A complete restructure might make it more accessible and easy to comprehend. Can I canvass suggestions for a restructure? Adhib 19:07, 15 Sep 2004 (UTC)
I'm the main author of the entry, but I'll leave it for others to suggest a way to restructure it. Jim 15:46, Sep 16, 2004 (UTC)
- I'd like it to start with a simple, logical exposition of what Labor theory means in general, with an emphasis on the prime difference between it and 'mainstream' economic theory - that there is an objective value embodied in goods, as opposed to a 'constructed' value, existing subjectively between buyer and seller. Then focus the account of the several distinct labor theories (and critiques relevant to the same) around their specific incarnations; ie, Smithian, Ricardian, Marxian, perhaps Sraffian. This historic approach would give the reader a narrative, to follow refinements to the theory. Some issues (exploitation, transformation problem) would be better moved to their relevant entries elsewhere. Thoughts? Adhib 10:28, 20 Sep 2004 (UTC)
- I agree, that would be better. As it is now, it is dense, and the history and explaining is interlinked. Also, the language seems to be needlessly complicated. The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented society: the theory equates the "value" of an exchangeable good or service (i.e., a commodity) with the amount of labor required to produce it. could easily be changed to The labor theory of value (LTV) is a theory in economics and political economy: the theory equates the "value" of a product with the amount of labor required to produce it.' without actually dropping any information. Regebro 06:48, 24 Sep 2004 (UTC)
I shortened it again (especially the history part), since the Wikigods told me to. Also, I dropped the references to "subjective" and "objective" value theories, because these terms need to be explained (making the entry longer). I see the former as referring to the view of individual participants within the system as a whole, while the latter refers to the institutional structure of the totality of the system. Jim 22:50, Sep 23, 2004 (UTC)
- A link to Economic subjectivism would take care of that explanation, I guess... Also, I think some info deserves a page of their own, like the explanation of Marx theory of exploitation.
It's funny how this article looks like it comes from a paper encyclopedia, where you want all information to be close together, but in fact it has evolved into that collaboratively. :) Regebro 06:57, 24 Sep 2004 (UTC)
Bluemoose, why did you change the alternative interpretation? I reverted to the previous version. Unless there's a good reason, I say keep the text the way it is. Jim 17:44, Feb 9, 2005 (UTC)