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Labor Theory of Value

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The Labor Theory of value posits that the value of a good or service can be quantified by the amount of labor put into its creation. This idea is often attributed to Karl Marx and his analysis of the increasing prevalence of alienated labor during the industrial revolution, however it was formulated by liberal economists a century prior to Marx's writings during the birth of the market economy. Prior even to them, the earliest hints of this emerging theoretical framework were beginning to appear in the 17th century in the aftermath of the English Civil War and the Glorious Revolution. The idea that value comes from labor even goes as far back as the writings of Thomas Aquinas , however it would be many centuries before these ideas would be expounded upon in great detail.

John Locke
Prior to the classical economists of the 18th century, the precursor to the the labor theory of value were being described by 17th century philosophers. The most notable of these being John Locke. In Locke's Second Treatise of Government he describes a process through which labor adds value to land (Vaughn 1978). The idea however is only briefly touched upon and mainly serves as a justification to claim ownership of land. While initially a purely theoretical explanation for how communal property might have given way to private property after humans emerged from the State of Nature, it in practice it would serve as a justification for the appropriation of land from indigenous people by colonial powers. The reasoning for this being it was claimed that Indigenous people did not add value to land through labor in the European conception of it through settled agriculture. Locke's ideas differ from later conceptions of the labor theory of value in that it does not seek to measure the value of something based on the amount of work put into it. This philosophical framework could only have emerged from late 17th century England. Unlike other European countries where the decline of the feudal system trended toward a centralized absolute monarchy, in England the power lost by the landed gentry was picked up by small landowners and merchants. This would lead to a more free market oriented economy and the liberal ideology in which the first labor theory of value would be formulated.

Adam Smith
One of the first economic thinkers to talk about a labor theory of value as a coherent idea was Adam Smith. Smith claimed that a good's value could be determined by how much labor was put into its manufacture as well as how much time otherwise spent laboring the good could save, called use value. Smith did however note exceptions to this general principle stating that very useful things might not be valuable, such as water; and that things that were not particularly useful could be very valuable, such as gold. This he attributed to the principle of supply and demand. Smith argued that labor could only be the sole determinant of value in a primitive society. A primitive society being defined as one without the private ownership of land or complex tools. Smith explained this through an analogy which stated that in a primitive society if it takes 2 hours to hunt a beaver and 1 hour to hunt a deer, then 1 beaver is equal to 2 deer. The discrepancy between pure labor value and actual value Smith argued, was that the owner of the means of production was entitled to a portion of the value the laborer produced because they are the ones who provided the necessary tools (Robertson 1957). It is worth noting that Smith and subsequent theorists made a distinction between the value of a good and the price of a good. The price being the amount a good is sold for, which is always higher than the value so that the producer can make a profit. Smith's writing can be seen as a continuation of the struggle between the emergent bourgeois classes and the remnants of feudalism in his critique of the mercantile system. While Locke's writings outlined a justification for the acquisition of private property beyond feudal tradition, Smith sought to further outline the rights of property owners to engage in economic activity absent feudal tradition. While he himself did not proscribe to the idea that there is a one to one relationship between labor and value, his writings are indispensable to later theorists who did reach that conclusion. 

David Ricardo
David Ricardo was a classical economist who was foremost concerned with what gave goods their value. While there have been misconceptions that Ricardo believed that labor alone conferred value onto a good, his views were more complicated than that. Ricardo sought mostly to build upon Adam Smith’s work and correct his errors. Both he and Smith started from the assumption that the three significant factors of production were capital, land and labor. The most significant error Smith made by Ricardo's estimation was an inconsistent definition of labor which seemed to vary from chapter to chapter of The Wealth of Nations. Ricardo diverges from Smith in that he advocates a labor embodied theory of value as opposed to Smith's labor command theory of value. What this means is that the embodied labor theory refers to labor spent to produce a commodity, while command labor theory refers to the amount of labor value that commodities can be exchanged for. Ricardo marks the point where labor theory stops being merely a measure of a commodities' value but the source of a commodities' value. Ricardo posits like Smith that the simplest or most primitive type of production’s value may be based solely on the amount of labor put in, Ricardo states that some labor produces more value because it requires a greater amount of skill. So two types of work that are comparable in time and exertion may produce goods of different value because one may be more difficult in a technical sense. Ricardo also noted what he believed to be exceptions to the labor theory of value, such as vintage wines which may accumulate value simply through age without additional labor being put into them. Due to Ricardo believing that labor is the most important but not the sole determinant of value, his has been called the 93% labor theory of value (Stigler 1958).

Karl Marx
Arguably the most significant figure in the development of the labor theory of value, Karl Marx was notable for his radical departure from earlier thinkers, initially critiquing classical political economy and later capitalism in general. Like Ricardo, Marx's theory of value is  While Marx built on the ideas of earlier thinkers like Ricardo and Smith, he also challenged many of their key assumptions. While the liberal approach in analyzing value produced by labor is focused on whether or not employers are fair in their dealings with their employees, Marx would use this analysis to claim that the employer-employee relationship was inherently exploitative. A continuation of this conflict of viewpoints can be seen in The High-Liberal vs Collectivist Justice Contrast. Marx posited that someone owning the means of production and then taking a percentage of the value produced with them by other people was unjust and that a worker's wage should always be directly proportional to the labor expended by the worker. Marx also attempted to solve what is known as the transformation problem. This is a common critique of the labor theory of value which asks that if value is derived from labor, then why are the most labor intensive businesses not the most profitable. Marx answers this by noting that each good has an exchange value. This means that a certain amount of a given good is worth the same as a certain amount of a different good. Even if these goods have totally different compositions and uses, there must be some “common element of identical magnitude” that makes them equivalent. Marx posits that this must be the only thing that all commodities have in common, that being human labor. It is noteworthy that Marx himself never used the term labor theory of value, but instead referred to a law of value (Slack 2020).

The Transformation Problem
Another answer to the transformation problem is that just because value is derived from labor does not necessarily mean that the most profitable arrangement for an employer is when labor is utilized most efficiently. A business may remain profitable when labor
and its products are wasted both deliberately and inadvertently. Even the laborer themselves may be considered disposable (Yates 2011). The clearest instance of this can be seen in the global south. In developing countries today there is rapid urbanization, very similar to what occurred in western countries during the Industrial Revolution of the 19th century. While many similar phenomena are taking place there is a key difference, that being that there is not enough capital in many of these developing countries to take advantage of the growing urban population, leading to a high number of people who cannot find steady or reliable income. This highlights the fact that rather than efficiency being the most important factor of profitability, the foremost concern for a business is ensuring that labor is cheap. 
With the existence of a “reserve army of labor”, a surplus supply, demand for labor goes down, making it less expensive meaning that employers can extract a greater percentage value produced by their employees. A prominent example of this can be seen in the study of Food Justice (Injustice)  Agricultural workers are kept deliberately in conditions of deprivation, mistreatment and precarity.

Contemporary Analyses
The Marxian approach has not been the final word on the subject of labor and value however. Contemporary scholars have noted a myriad of ways in which value is attributed to goods that have come about relatively recently. Cultural and psychological factors might have an impact on the value of goods. Advertising and marketing have become almost as important to business as the products and services themselves. These narratives being told can influence one’s valuation of something beyond need or utility or any material consideration. Goods that cost relatively paltry sums to produce which are built in factories that are mostly automated are still marked up to sometimes hundreds of times what it cost to produce. However there are also 
limits of supply and demand as a price determinant as well. Even with productivity higher than it has ever been, prices remain the same. The decreased amount of necessary labor has not made goods less valuable but has made them more profitable to make. While later socialist analyses may diverge greatly from traditionally liberal ones, they are not necessarily incompatible. There have been subsequent attempts to synthesize the two traditions. It has been argued that Piero Sraffa was able to achieve this through a single formula. He is considered the founder of the Neo-Ricardian school of economics. A contribution Sraffa made to earlier works was his concept of the standard commodity, which is actually a collection of commodities whose price is not dependent on fluctuations in price due to distribution or income (Jefferies 2021). This rhetorical device allows one to analyze value without having to compare relative prices of different goods. This means that the value produced by labor can be more directly quantified.

Vaughn, Karen I. 1978. "John Locke and the Labor Theory of Value:". Britain: Pergamon Press Ltd.

Robertson, H.M. and W.L. Taylor. June 1957. “Adam Smith’s Approach to the Theory of Value”. The Economic Journal Vol. 67. Oxford University Press

Stigler, George J. June 1958. “Ricardo and the 93% Labor Theory of Value”. The American Economic Review. American Economic Association.

Slack, Gregory. September 10th 2020. “Marx’s argument for the Labor Theory of Value”. Review of Radical Political Economics.

Yates, Michael. June 1st 2011. “The Human-As-Waste, The Labor Theory of Value and Disposability in Contemporary Capitalism” . Antipode. Editorial Board of Antipode

Cameron, Alexia. Fall 2020. “Affect and the labor theory of value: a contemporary amendment”. Journal of Comparative Research in Anthropology and Sociology. University of Bucharest, Department of Sociology

Jefferies, William (2021). Comment on “Sraffa and the labour theory of value: A note". Brazilian Journal of Political Economy41(1), 198–201.

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