Labor Theory of Value: Unlocking Economic Secrets, a Journey into the Labor Theory of Value

By Fouad Sabry

What is Labor Theory of Value

The labor theory of value (LTV) is a theory of value that argues that the economic value of a good or service is determined by the total amount of "socially necessary labor" required to produce it.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Labor theory of value

Chapter 2: Capital (economics)

Chapter 3: Transformation problem

Chapter 4: Classical economics

Chapter 5: Organic composition of capital

Chapter 6: Use value

Chapter 7: Theory of value (economics)

Chapter 8: Law of value

Chapter 9: Prices of production

Chapter 10: Productive and unproductive labour

Chapter 11: Unequal exchange

Chapter 12: Tendency of the rate of profit to fall

Chapter 13: Criticism of Marxism

Chapter 14: Temporal single-system interpretation

Chapter 15: Commodity (Marxism)

Chapter 16: Criticisms of the labour theory of value

Chapter 17: Constant capital

Chapter 18: Capitalist mode of production (Marxist theory)

Chapter 19: Surplus value

Chapter 20: Marxian economics

Chapter 21: Capital accumulation

(II) Answering the public top questions about labor theory of value.

(III) Real world examples for the usage of labor theory of value in many fields.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of labor theory of value.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Jan 19, 2024

Book preview

Chapter 1: Labor theory of value

The labor theory of value (LTV) contends that the economic value of a good or service is determined by the total amount of socially necessary labor required to produce it.

The LTV is typically associated with Marxian economics, but it first appeared in the theories of classical economists such as Adam Smith and David Ricardo, and later in anarchist economics. Smith viewed the price of a commodity in terms of the labor required to purchase it, which embodies the concept of how much labor a product, such as a tool, can save the buyer. Marxist theory holds that the working class is exploited under capitalism and dissociates price and value around the LTV. Marx, however, never referred to his own theory of value as a labor theory of value..

Theoretically, when discussing a labor theory of value, the term value should refer to the amount of labor required to produce a marketable commodity, including the labor required to develop any real capital used in the production. Both John Ricardo Adam Smith's labor theory of value did not require the quantification of past labor, nor did it address the labor required to produce the tools (capital) that could be used to produce a commodity. Smith's theory of value resembled later utility theories in that he asserted that a commodity was worth the amount of labor it could command from others (value in trade) or the amount of labor it could save the self (value in use), or both. Nonetheless, this value is contingent upon supply and demand at a given time:

The true cost of everything, i.e., what it really costs to acquire something, is the effort and trouble required to acquire it. What a thing is truly worth to the person who has acquired it and wishes to dispose of it or trade it for something else is the amount of effort and trouble that it can save or impose on the owner. (Book 1 chapter 5 of Wealth of Nations)

Smith's theory of price has nothing to do with the labor expended in the past to produce a good. It only refers to the labor that can currently be commanded or saved. If there is no use for a buggy whip, then the item has no economic value in trade or use, regardless of how much labor went into producing it.

The value in use of a commodity is its usefulness, or utility. When examining this type of value, a classic paradox frequently arises. According to Adam Smith:

It should be noted that the term value has two distinct meanings: sometimes it refers to the utility of a particular object, and other times it refers to the purchasing power that the possession of that object confers. One is referred to as value in use, while the other is value in exchange. The things that have the greatest value in use frequently have little or no value in exchange, while the things that have the greatest value in exchange typically have little or no value in use. Nothing is more useful than water, but it cannot be exchanged for much; it cannot be obtained in exchange for much. A diamond, on the other hand, has little practical value, but it can frequently be exchanged for a vast quantity of other goods. (Book 1 chapter IV of Wealth of Nations).

Value in exchange is the proportion of this commodity that is exchanged for another (in other words, its price in the case of money). It is relative to labor, as Adam Smith explained:

The value of any commodity, [...] to a person who does not intend to use or consume it himself, but rather to exchange it for other commodities, is equal to the quantity of labor that it enables him to purchase or command. Therefore, the true measure of the exchangeable value of all commodities is labor. (Book 1 chapter 5 of Wealth of Nations).

Unqualified value is the labor embodied in a commodity under a given production structure. Marx defined the commodity's value using this third definition. In his view, a commodity's value consists of socially necessary abstract labor. According to David Ricardo and other classical economists, this definition serves as a measure of real cost, absolute value, or a measure of value unaffected by distribution and technology changes.

Since the LTV defines value as something created by labor and magnitude as something proportional to the quantity of labor performed, it is necessary to explain how the labor process preserves and adds value to the commodities it