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| {{pp-protected|expiry=2014-03-02 17:12:45|small=yes}}The '''labor theories of value''' ('''LTV''') are [[heterodox economic]] [[theory of value (economics)|theories of value]] that argue the [[Value (economics)|value]] of a [[commodity]] is only related to the [[Labour economics|labor]] needed to produce or obtain that commodity and not to other [[factors of production]] (except as those elements can be regarded as embodied labour.) Presently the concept is most often associated with [[Marxian economics]], although it appears as a foundation to earlier [[Classical economics|classical economic]] theorists such as [[Adam Smith]] and [[David Ricardo]] and later also in [[anarchist economics]].
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| ==Definitions of value and labor==
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| When speaking in terms of a labor theory of value, '''value''', without any qualifying adjective should theoretically refer to the amount of labor necessary to the production of a marketable commodity, including the labor necessary to the development of any real capital employed in the production. Both [[David Ricardo#Value theory|David Ricardo]] and [[Karl Marx]] attempted to quantify and embody all labor components in order to set the real price, or natural price of a commodity.<ref>e.g. see - Junankar, P. N., ''Marx's economics'', Oxford : Philip Allan, 1982, ISBN 0-86003-125-X or Peach, Terry "Interpreting Ricardo", Cambridge: [[Cambridge University Press]], 1993, ISBN 0-521-26086-8</ref> The labor theory of value, as presented by [[Adam Smith]], however, did not require the quantification of all past labor, nor did it deal with the labor needed to create the tools (capital) that might be employed in the production of a commodity. The Smith theory of value was very similar to the later utility theories in that Smith proclaimed that a commodity was worth whatever labor it would command in others (value in trade) or whatever labor it would "save" the self (value in use), or both. But this "value" is subject to supply and demand at a particular time.
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| <blockquote>
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| The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. (''Wealth of Nations'' Book 1, chapter V)
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| </blockquote>
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| Smith's theory of price (which for many is the same as value) has nothing to do with the past labor spent in the production of a commodity. It speaks only of the labor that can be "commanded" or "saved" at present. If there is no use for a buggy whip then the item is economically worthless in trade or in use, regardless of all the labor spent in its creation. Duncan (1995, 2000, 2004) has provided remarkable insights into how Smith's theory of value accounts for role of nature in generation of value.
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| ===Distinctions of economically pertinent labor===
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| A person drinking water from a good stream at his doorstep must "spend" labor to gain this value, at least if this action is relevant to economics. In terms of modern orthodox terminology it is important to note that ''labor'', at least in Smith's approach, is the opposite of utility—..disutility'', pain, toil etc. Labor that is pleasant in itself is only therefore partly labor, or perhaps not labor at all (however, see ''[[opportunity cost]]''). Highly skilled labor, on the other hand, owes part of its produce to an "[[investment]]" in [[training]], and is almost like [[Capital (economics)|capital]] (hence the modern concept of [[human capital]]). So many types of pleasant labor can be described as a result of an earlier and more painful investment.
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| In the example of a person going to a stream at his doorstep, if this is a pleasant activity, it is not labor. If it is not pleasant it could be relevant to economics because, for example, the house could be built closer to the stream, plumbing could be installed, a person could be employed to fetch water, or investment in a better path to the water might be worth considering.
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| But the above way of defining value is not the only one.
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| '''Value "in use"''' is the [[usefulness]] of this commodity, its [[utility]]. A classical [[paradox of value|paradox]] often comes up when considering this type of value. In the words of Adam Smith:
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| <blockquote>
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| The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use ;' the other, 'value in exchange.' The things which have the greatest value in use have frequently little or no value in exchange; and on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it. (''Wealth of Nations'' Book 1, chapter IV)
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| </blockquote>
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| '''Value "in [[trade|exchange]]"''' is the relative proportion with which this commodity exchanges for another commodity (in other words, its [[price]] in the case of [[money]]). It is relative to labor as explained by Adam Smith:
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| <blockquote>
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| The value of any commodity, ... ''to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities'', is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the ''exchangeable value'' of all commodities (''Wealth of Nations'' Book 1, chapter V; emphasis added).
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| </blockquote>
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| '''Value''' (without qualification) as an intrinsic worth that stands without the process of exchange. Marx defined the value of the commodity by the third definition. In his terms, value is the 'socially necessary abstract labor' embodied in a commodity. In [[David Ricardo|Ricardo]] and other classical economists, this definition serves as a measure of "real cost", "absolute value", or a "measure of value" invariable under changes in distribution and technology.<ref>Ricardo, David (1823), 'Absolute Value and Exchange Value', in "The Works and Correspondence of David Ricardo", Volume 4, Cambridge University Press, 1951 and Sraffa, Piero and Maurice Dobb (1951), 'Introduction', in "The Works and Correspondence of David Ricardo", Volume 1, Cambridge University Press, 1951.</ref>
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| Ricardo, other classical economists, and Marx began their expositions with the assumption that value in exchange was equal to or proportional to this labor value. They thought this was a good assumption from which to explore the dynamics of development in capitalist societies.
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| Other supporters of the labor theory of value used the word "value" in the second sense, to represent "exchange value".<ref>Proudhon, Pierre J., 1851, ''General Idea of the Revolution in the 19th Century'', study 6.</ref>
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| ==Conceptual model==
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| A simple model illustrating the concepts and workings of LTV could go as follows:
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| <blockquote>In a village in Somewhereia, everyone shares a set of skills and their produce is derived from local natural resources. Through custom or inclination each person pursues a particular trade, but is capable of pursuing any other in the village.
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| These people exchange their products on a regular basis. Each would know how long it took their fellow to produce their good, and how long it would take them to make it themselves. They would also know how much of their own product they would produce in the same amount of time and how much they would be able to exchange for that product.
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| If anyone tried to overcharge for a good, people would stop buying and make it themselves (or a competitor could enter the market and undercut them). Each person would thus be able to calculate whether it would be better for them to buy a good or make it themselves.
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| In this scenario prices and values would be equal.<ref group=note>[[Friedrich Engels]] advances such a conceptual model in his Appendix to [[Karl Marx|Marx']] [http://www.marxists.org/archive/marx/works/1894-c3/supp.htm Capital v. III]</ref> </blockquote>
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| ==LTV and the labor process==
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| Since the term ''value'' is understood in the LTV as denoting something created by labor, and its "magnitude" as something proportional to the quantity of labor performed, it is important to explain how the labor process both preserves value and adds new value in the commodities it creates.<ref group=note>Unless otherwise noted, the description of the labor process and the role of the value of means of production in this section are drawn from chapter 7 of ''Capital'' vol1 {{harv|Marx|1867|}}.</ref>
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| The value of a commodity increases in proportion to the duration and intensity of labor performed on average for its production. Part of what the LTV means by "socially necessary" is that the value only increases in proportion to this labor as it is performed with average skill and average productivity. So though workers may labor with greater skill or more productivity than others, these more skillful and more productive workers thus produce more value through the production of greater quantities of the finished commodity. Each unit still bears the same value as all the others of the same class of commodity. By working sloppily, unskilled workers may drag down the average skill of labor, thus increasing the average labor time necessary for the production of each unit commodity. But these unskillful workers cannot hope to sell the result of their labor process at a higher price (as opposed to value) simply because they have spent more time than other workers producing the same kind of commodities.
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| However, production not only involves labor, but also certain means of labor: tools, materials, power plants and so on. These means of labor — also known as [[means of production]] — are often the product of another labor process as well. So the labor process inevitably involves these means of production that already enter the process with a certain amount of value. Labor also requires other means of production that are not produced with labor and therefore bear no value: such as sunlight, air, uncultivated land, un-extracted minerals, etc. While useful, even crucial to the production process, these bring no value to that process. In terms of means of production resulting from another labor process, LTV treats the magnitude of value of these produced means of production as constant throughout the labor process. Due to the constancy of their value, these means of production are referred to, in this light, as constant capital.
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| Consider for example workers who take coffee beans, use a roaster to roast them, and then use a brewer to brew and dispense a fresh cup of coffee. In performing this labor, these workers add value to the coffee beans and water that comprise the material ingredients of a cup of coffee. The worker also transfers the value of constant capital — the value of the beans; some specific depreciated value of the roaster and the brewer; and the value of the cup — to the value of the final cup of coffee. Again, on average the worker can transfer no more than the value of these means of labor previously possessed to the finished cup of coffee<ref group=note>In the case of instruments of labor, such as the roaster and the brewer (or even a ceramic cup) the value transferred to the cup of coffee is only a depreciated value calculated over the life of those instruments of labor according to some accounting convention.</ref> So the value of coffee produced in a day equals the sum of both the value of the means of labor — this constant capital — and the value newly added by the worker in proportion to the duration and intensity of their work.
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| Often this is expressed mathematically as:
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| :::::: <math>c+L=W</math>,
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| :where
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| :* <math>c</math> is the constant capital of materials used in a period plus the depreciated portion of tools and plant used in the process. (A period is typically a day, week, year, or a single turnover: meaning the time required to complete one batch of coffee, for example.)
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| :* <math>L</math> is the quantity of labor time (average skill and productivity) performed in producing the finished commodities during the period
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| :* <math>W</math> is the value of the product of the period (<math>w</math> comes from the German word for value: ''wert'')
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| Note: if the product resulting from the labor process is homogeneous (all similar in quality and traits, for example, all cups of coffee) then the value of the period’s product can be divided by the total number of items (use-values or <math>v_u</math>) produced to derive the unit value of each item. <math>\begin{matrix}w_i= \frac{W}{\sum v_u}\,\end{matrix}</math> where <math>\sum v_u</math> is the total items produced.
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| The LTV further divides the value added during the period of production, <math>L</math>, into two parts. The first part is the portion of the process when the workers add value equivalent to the wages they are paid. For example, if the period in question is one week and these workers collectively are paid $1,000, then the time necessary to add $1,000 to — while preserving the value of — constant capital is considered the necessary labor portion of the period (or week): denoted <math>NL</math>. The remaining period is considered the surplus labor portion of the week: or <math>SL</math>. The value used to purchase labor-power, for example the $1,000 paid in wages to these workers for the week, is called variable capital (<math>v</math>). This is because in contrast to the constant capital expended on means of production, variable capital can add value in the labor process. The amount it adds depends on the duration, intensity, productivity and skill of the labor-power purchased: in this sense the buyer of labor-power has purchased a commodity of variable use. Finally, the value added during the portion of the period when surplus labor is performed is called surplus value (<math>s</math>). From the variables defined above, we find two other common expression for the value produced during a given period as:
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| ::::<math>c+v+s=W</math>
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| :::and
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| ::::<math>c+NL+SL=W</math>
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| The first form of the equation expresses the value resulting from production, focusing on the costs <math>c+v</math> and the surplus value appropriated in the process of production, <math>s</math>. The second form of the equation focuses on the value of production in terms of the valued added by the labor performed during the process <math>NL+SL</math>.
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| ==The relation between values and prices==
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| One issue facing the LTV is the relationship between value quantities on one hand and prices on the other. If a commodity's value is not the same as its price, and therefore the magnitudes of each likely differ, then what is the relation between the two, if any? Various LTV schools of thought provide different answers to this question. For example, some argue that value in the sense of the amount of labor embodied in a good acts as a center of gravity for price. As counter-intuitive as this may seem to those accustomed to [[Neoclassical economics#Origins|neoclassical price theory]], some empirical evidence suggests labor values are a better predictor of empirically recorded prices than prediction by any other means.<ref name="homepage.newschool.edu">see for example [http://homepage.newschool.edu/~AShaikh/labthvalue.pdf The Empirical Strength of the Labour Theory of Value]</ref>
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| However, most economists would say that cases where pricing is even approximately equal to the value of the labor embodied are only special cases, and not the general case. In the standard formulation, prices also normally include a level of income for "[[Capital (economics)|capital]]" and "[[Land (economics)|land]]". These incomes are known as "[[Profit (economics)|profit]]" and "[[Economic rent|rent]]" respectively. Keep in mind that—like the terms ''labor'' and ''value''—the terms ''price, ''capital'', ''land'', ''profit'', and ''rent'' are used here in a theoretical way that does not always correspond to everyday use, even by [[accounting|accountants]].)
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| In Book 1, chapter VI, Smith explains:
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| <blockquote>
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| The real value of all the different component parts of price, it must be observed, is measured by the quantity of labour which they can, each of them, purchase or command. Labour measures the value not only of that part of price which resolves itself into labour, but of that which resolves itself into rent, and of that which resolves itself into profit.
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| </blockquote>
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| The final sentence shows us how Smith sees value of a product as relative to labor of buyer or consumer, as opposite to Marx who sees the value of a product being proportional to labor of laborer or producer. And we value things, price them, based on how much labor we can avoid or command, and we can command labor not only in a simple way but also by [[Trade|trading]] things for a profit.
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| The demonstration of the relation between commodities' unit values and their respective prices is known in Marxian terminology as the [[transformation problem]] or the transformation of values into prices of production. The transformation problem has probably generated the greatest bulk of debate about the LTV. The problem with transformation is to find an algorithm where the magnitude of value added by labor, in proportion to its duration and intensity, is sufficiently accounted for after this value is distributed through prices that reflect an equal rate of return on capital advanced. If there is an additional magnitude of value or a loss of value after transformation compared with before then the relation between values (proportional to labor) and prices (proportional to total capital advanced) is incomplete. Various solutions and impossibility theorems have been offered for the transformation, but the debate has not reached any clear resolution.
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| LTV does not deny the role of supply and demand influencing price since the price of a commodity is something other than its value. In ''Value, Price and Profit'' (1865), [[Karl Marx]] quotes [[Adam Smith]] and sums up:
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| :It suffices to say that if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say, with their values as determined by the respective quantities of labor required for their production.<ref>Marx, Karl (1865). [http://www.marxists.org/archive/marx/works/1865/value-price-profit/ch02.htm#c6 Value, Price and Profit.]</ref>
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| The LTV seeks to explain the level of this equilibrium. This could be explained by a ''[[cost of production]]'' argument—pointing out that all costs are ultimately labor costs, but this does not account for profit, and it is vulnerable to the charge of [[Tautology (rhetoric)|tautology]] in that it explains prices by prices.<ref>Piero Sraffa and Maurice H. Dobb (1951). "General Preface", ''The Works and Correspondence of David Ricardo'', Vol. 1, Cambridge University Press</ref> Marx later called this "Smith's adding up theory of value".
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| Smith argues that labor values are the natural measure of exchange for direct producers like hunters and fishermen.<ref>[http://www.ehu.es/kormazabal/SmithOnLaborValue.pdf ''Smith On Labour Value'']</ref> Marx, on the other hand, uses a measurement analogy, arguing that for commodities to be comparable they must have a common element or substance by which to measure them,<ref>Marx, Karl [http://www.marxists.org/archive/marx/works/1865/value-price-profit/ch02.htm#c6 Value Price and Profit]</ref> and that labor is a common substance of what Marx eventually calls ''commodity-values''.<ref>{{Harv|Marx|1867|}}</ref>
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| Some statistical evidence for the theory has also been advanced by [[Anwar Shaikh (Economist)|Anwar Shaikh]].<ref name="homepage.newschool.edu"/>
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| ==The theory's development==
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| {{Undue|date=March 2012}}
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| {{POV|date=March 2012}}
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| ===Origins of the labor theory of value===
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| The labor theory of value has developed over many centuries. It had no single originator, but rather many different thinkers arrived at the same conclusion independently. Some writers trace its origin to [[Thomas Aquinas]].<ref>{{cite book |last=Russel |first=Bertrand |year=1946 |title=History of Western philosophy |location= |publisher= |page=578 }}</ref><ref>{{cite book |last=Baeck |first=L. |year=1994 |title=The Mediterranean tradition in economic thought |location=New York |publisher=Routledge |page=151 |isbn=0415093015 }}</ref> In his ''[[Summa Theologica|Summa Theologiae]]'' (1265–1274) he expresses the view that "... value can, does and should increase in relation to the amount of labor which has been expended in the improvement of commodities."<ref>{{cite book |first=Austin J. |last=Jaffe |first2=Kenneth M. |last2=Lusht |chapter=The History of the Value Theory: The Early Years |page=11 |title=Essays in honor of William N. Kinnard, Jr |year=2003 |location=Boston |publisher=Kluwer Academic |isbn=1402075162 }}</ref> Scholars such as [[Joseph Schumpeter]] have cited [[Ibn Khaldun]], who in his ''[[Muqaddimah]]'' (1377), described labor as the source of value, necessary for all earnings and capital accumulation. He argued that even if earning “results from something other than a craft, the value of the resulting profit and acquired (capital) must (also) include the value of the labor by which it was obtained. Without labor, it would not have been acquired.”<ref name=Oweiss>{{cite book |first=I. M. |last=Oweiss |year=1988 |chapter=Ibn Khaldun, the Father of Economics |title=Arab Civilization: Challenges and Responses |publisher=[[New York University Press]] |isbn=0-88706-698-4 }}</ref> Scholars have also pointed to [[Sir William Petty]]'s ''Treatise of Taxes'' of 1662<ref>Parrington [http://xroads.virginia.edu/~Hyper/Parrington/vol1/bk02_01_ch03.html vol 1 ch 3]</ref> and to [[John Locke]]'s [[labor theory of property]], set out in the ''[[Two Treatises of Government|Second Treatise on Government]]'' (1689), which sees labor as the ultimate source of economic value. [[Karl Marx]] himself credited [[Benjamin Franklin]] in his 1729 essay entitled "A Modest Enquiry into the Nature and Necessity of a Paper Currency" as being "one of the first" to advance the theory.<ref>Karl Marx,''[[Value, Price, and Profit]]'', 1865, Part VI.</ref>
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| Pioneer Scottish economist [[Adam Smith]] accepted the theory for pre-capitalist societies but saw a flaw in its application to contemporary [[capitalism]]. He pointed out that if the "labor embodied" in a product equalled the "labor commanded" (i.e. the amount of labor that could be purchased by selling it), then profit was impossible. [[David Ricardo]] (seconded by [[Karl Marx|Marx]]) responded to this paradox by arguing that Smith had confused labor with wages. "Labor commanded", he argued, would always be more than the labor needed to sustain itself (wages). The value of labor, in this view, covered not just the value of wages (what Marx called the value of [[labor power]]), but the value of the entire product created by labor.<ref>Ormazabal, Kepa M. (2006); [http://www.fae1-eao1.ehu.es/s0043-con/en/contenidos/informacion/00043_documentostrabajo/es_00043_do/adjuntos/il2006-26.pdf Adam Smith on Labor and Value: Challenging the Standard Interpretation]</ref>
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| Ricardo's theory was a predecessor of the modern theory that equilibrium prices are determined solely by [[Cost-of-production theory of value|production costs]] associated with [[Neo-Ricardianism]].<ref>[http://web.archive.org/web/20090418155154/http://cepa.newschool.edu/het/schools/neoric.htm The Neo-Ricardians](archive), [[New School University]]</ref>
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| Based on the discrepancy between the wages of labor and the value of the product, the "[[Ricardian socialists]]" — [[Charles Hall]], [[Thomas Hodgskin]], [[John Gray (19th century socialist)|John Gray]], and [[John Francis Bray]], and [[Percy Ravenstone]]<ref>[http://web.archive.org/web/20040214153800/http://cepa.newschool.edu/het/schools/utopia.htm#hall Utopians and Socialists: Ricardian Socialists](archive), History of Economic Thought, [[New School University]]</ref> — applied Ricardo's theory to develop theories of [[exploitation]].
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| Marx expanded on these ideas, arguing that workers work for a part of each day adding the value required to cover their wages, while the remainder of their labor is performed for the enrichment of the capitalist. The LTV and the accompanying theory of exploitation became central to his economic thought.
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| 19th century [[American individualist anarchists]] based their economics on the LTV, with their particular interpretation of it being called "[[Cost the limit of price]]". They, as well as contemporary individualist anarchists in that tradition, hold that it is unethical to charge a higher price for a commodity than the amount of labor required to produce it. Hence, they propose that trade should be facilitated by using notes backed by labor.
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| ===Adam Smith and David Ricardo===
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| Adam Smith held that, in a primitive society, the amount of labor put into producing a good determined its exchange value, with exchange value meaning in this case the amount of labor a good can purchase. However, according to Smith, in a more advanced society the market price is no longer proportional to labor cost since the value of the good now includes compensation for the owner of the means of production: "The whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him."<ref>Smith quoted in Whitaker, Albert C. ''[http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/whitaker/labortheory.pdf History and Criticism of the Labor Theory of Value]'', pp. 15-16</ref> "Nevertheless, the 'real value' of such a commodity produced in advanced society is measured by the labor which that commodity will command in exchange. ... But [Smith] disowns what is naturally thought of as the genuine classical labor theory of value, that labor-cost regulates market-value. This theory was Ricardo’s, and really his alone."<ref>Whitaker, Albert C. ''[http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/whitaker/labortheory.pdf History and Criticism of the Labor Theory of Value]'', pp. 15-16</ref>
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| Classical economist David Ricardo's labor theory of value holds that the [[Value (economics)|value]] of a [[good (economics)|good]] (how much of another good or service it exchanges for in the market) is proportional to how much [[labour (economics)|labor]] was required to produce it, including the labor required to produce the raw materials and machinery used in the process. David Ricardo stated it as, "The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not as the greater or less compensation which is paid for that labour." (Ricardo 1817) In this heading Ricardo seeks to differentiate the quantity of labor necessary to produce a commodity from the wages paid to the laborers for its production. However, Ricardo was troubled with some deviations in prices from proportionality with the labor required to produce them. For example, he said "I cannot get over the difficulty of the wine, which is kept in the cellar for three or four years [i.e., while constantly increasing in exchange value], or that of the oak tree, which perhaps originally had not 2 s. expended on it in the way of labour, and yet comes to be worth £100."(Quoted in Whitaker) Of course, a capitalist economy stabilizes this discrepancy until the value added to aged wine is equal to the cost of storage. If anyone can hold onto a bottle for four years and become rich, that would make it hard to find freshly corked wine. There is also the theory that adding to the price of a luxury product increases its exchange-value by mere prestige.
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| The labor theory as an explanation for value contrasts with the [[subjective theory of value]], which says that value of a good is not determined by how much labor was put into it but by its usefulness in satisfying a want and its scarcity. Ricardo's labor theory of value is not a [[Normative economics|normative]] theory, as are some later forms of the labor theory, such as claims that it is ''immoral'' for an individual to be paid less for his labor than the total revenue that comes from the sales of all the goods he produces.
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| It is arguable to what extent these classical theorists held the labor theory of value as it is commonly defined.<ref>Whitaker, Albert C. Albert C. Whitaker, History and Criticism of the Labor Theory of Value</ref><ref>{{cite book |url=http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/whitaker/labortheory.pdf |last=Gordon |first=Donald, F. |title=What Was the Labor Theory of Value? |journal=[[American Economic Review]] |volume=49 |issue=2 |year=1959 |pages=462–472 }}</ref><ref>[http://links.jstor.org/sici?sici=0002-8282(195905)49%3A2%3C462%3AWWTLTO%3E2.0.CO%3B2-9 Jstor.org] King, Peter and Ripstein Arthur. Did Marx Hold a Labor Theory of Value?</ref><ref>[http://individual.utoronto.ca/pking/unpublished/LTV.pdf University of Toronto.ca]</ref> For instance, [[David Ricardo]] theorized that prices are determined by the amount of labor but found exceptions for which the labor theory could not account. In a letter, he wrote: "I am not satisfied with the explanation I have given of the principles which regulate value." [[Adam Smith]] theorized that the labor theory of value holds true only in the "early and rude state of society" but not in a modern economy where owners of capital are compensated by profit. As a result, "Smith ends up making little use of a labor theory of value."<ref>Canterbery, E. Ray, ''A Brief History of Economics: Artful Approaches to the Dismal Science, World Scientific (2001), pp. 52-53</ref>
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| === Anarchism ===
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| {{See also|Anarchist economics|Cost the limit of price}}
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| [[File:LaborNote.JPG|thumbnail|left|Sample labor for [[labor note]] for the [[Cincinnati Time Store]]. Scanned from ''Equitable Commerce'' (1846) by [[Josiah Warren]]]]
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| [[Pierre Joseph Proudhon]]'s [[Mutualism (economic theory)|mutualism]]<ref>"Thus, the classical solution of expressing the value of goods and services in terms of man hours, which was developed by the orthodox (political) economists of the time, was adopted by both Proudhon and Marx." http://www.inclusivedemocracy.org/dn/vol6/takis_proudhon.htm "Beyond Marx and Proudhon" by [[Takis Fotopoulos]]</ref> and [[American individualist anarchists]] such as [[Josiah Warren]], [[Lysander Spooner]] and [[Benjamin Tucker]]<ref>"The most basic difference is that the individualist anarchists rooted their ideas in the labour theory of value while the "anarcho"-capitalists favour mainstream marginalist theory." [http://www.infoshop.org/page/AnarchistFAQSectionG1 An Anarchist FAQ]</ref> adopted the [[Liberalism|liberal]] [[Labor Theory of Value]] of [[classical economics]] but used it to criticize capitalism instead favoring a non-capitalist market system.<ref>"Like Proudhon, they desired a (libertarian) socialist system based on the market but without exploitation and which rested on possession rather than capitalist private property"[http://www.infoshop.org/page/AnarchistFAQSectionG1 [[An Anarchist FAQ]]]</ref>
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| [[Josiah Warren]] is widely regarded as the first American [[anarchist]],<ref name=Slate>Palmer, Brian (2010-12-29) [http://www.slate.com/id/2279457/ What do anarchists want from us?], ''[[Slate.com]]''</ref><ref name=Mises>Riggenbach, Jeff (2011-02-25) [http://mises.org/daily/5067/Josiah-Warren-The-First-American-Anarchist Josiah Warren: The First American Anarchist], ''[[Mises Institute]]''</ref> and the four-page weekly paper he edited during 1833, ''The Peaceful Revolutionist'', was the first anarchist periodical published,<ref name="bailie20">William Bailie, [http://libertarian-labyrinth.org/warren/1stAmAnarch.pdf] ''Josiah Warren: The First American Anarchist — A Sociological Study'', Boston: Small, Maynard & Co., 1906, p. 20</ref>[[Cost the limit of price]] was a maxim coined by [[Josiah Warren]], indicating a (prescriptive) version of the labor theory of value. Warren maintained that the [[Justice|just]] compensation for labor (or for its product) could only be an equivalent amount of labor (or a product embodying an equivalent amount).<ref name=warren1>In ''Equitable Commerce'', Warren writes, "If a priest is required to get a soul out of purgatory, he sets his price according to the value which the relatives set upon his prayers, instead of their cost to the priest. This, again, is cannibalism. The same amount of labor equally disagreeable, with equal wear and tear, performed by his customers, would be a just remuneration</ref> Thus, [[profit (economics)|profit]], [[renting|rent]], and [[interest]] were considered unjust economic arrangements<ref name=mcelroy>Wendy McElroy, "[http://flag.blackened.net/daver/anarchism/mcelroy1.html Individualist Anarchism vs. "Libertarianism" and Anarchocommunism]," in the ''New Libertarian'', issue #12, October, 1984.</ref> In keeping with the tradition of [[Adam Smith]]'s ''[[The Wealth of Nations]]'',<ref>Smith writes: "The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it." Note, also, the sense of "labor" meaning "suffering."</ref> the "cost" of labor is considered to be the [[subjectivity|subjective]] cost; i.e., the amount of suffering involved in it.<ref name="warren1"/> He put his theories to the test by establishing an experimental "labor for labor store" called the [[Cincinnati Time Store]] at the corner of 5th and Elm Streets in what is now downtown Cincinnati, where trade was facilitated by notes backed by a promise to perform labor. "All the goods offered for sale in Warren's store were offered at the same price the merchant himself had paid for them, plus a small surcharge, in the neighborhood of 4 to 7 percent, to cover store overhead."<ref name=Mises/> The store proved successful and operated for three years after which it was closed so that Warren could pursue establishing colonies based on [[Mutualism (economic theory)|mutualism]]. These included "[[Utopia, Ohio|Utopia]]" and "[[past and present anarchist communities#Modern Times (1851 to late 1860s)|Modern Times]]." Warren said that [[Stephen Pearl Andrews]]' ''The Science of Society'', published in 1852, was the most lucid and complete exposition of Warren's own theories.<ref>Charles A. Madison. "Anarchism in the United States". ''Journal of the History of Ideas'', Vol. 6, No. 1. (Jan., 1945), pp. 53</ref>
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| [[Mutualism (economic theory)|Mutualism]] is an [[economics|economic theory]] and [[anarchism|anarchist]] [[anarchist school of thought|school of thought]] that advocates a society where each person might possess a [[means of production]], either individually or collectively, with trade representing equivalent amounts of labor in the [[free market]].<ref>{{cite web |url=http://www.mutualist.org/ |title=Introduction |publisher=Mutualist.org |date= |accessdate=2010-04-29}}</ref> Integral to the scheme was the establishment of a mutual-credit bank that would lend to producers at a minimal interest rate, just high enough to cover administration.<ref>Miller, David. 1987. "Mutualism." The Blackwell Encyclopedia of Political Thought. Blackwell Publishing. p. 11</ref> Mutualism is based on a labor theory of value that holds that when labor or its product is sold, in exchange, it ought to receive goods or services embodying "the amount of labor necessary to produce an article of exactly similar and equal utility".<ref>Tandy, Francis D., 1896, ''[[Voluntary Socialism]]'', chapter 6, paragraph 15.</ref> Mutualism originated from the writings of philosopher [[Pierre-Joseph Proudhon]].
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| [[Collectivist anarchism]] as defended by [[Mikhail Bakunin]] defended a form of labor theory of value when it advocated a system where "all necessaries for production are owned in common by the labour groups and the free communes ... based on the distribution of goods according to the labour contributed".<ref>{{cite web |author=— Darby Tillis |url=http://www.infoshop.org/page/AnarchistFAQSectionA3 |title=An Anarchist FAQ |publisher=Infoshop.org |date= |accessdate=2010-09-20}}</ref>
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| ===Karl Marx===
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| {{Marxian economics}}Contrary to popular belief,<ref>cf [[E F Schumacher]],''[[Small is Beautiful]]'', Pt 1, ch 1.</ref> Marx opposed "ascribing a supernatural creative power to labor", arguing that:
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| :Labor is not the source of all wealth. Nature is just as much a source of use values (and it is surely of such that material wealth consists!) as labor, which is itself only the manifestation of a force of nature, human labor power.<ref name="Critique of the Gotha Program">[http://www.marxists.org/archive/marx/works/1875/gotha/ch01.htm Critique of the Gotha Program] ch 1</ref>
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| Here Marx was distinguishing between [[exchange value]] (the subject of the LTV) and [[use value]].
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| Marx used the concept of "[[socially necessary labour time|socially necessary abstract labor-time]]" to introduce a social perspective distinct from his predecessors and [[neoclassical economics]]. Whereas most economists start with the individual's perspective, Marx started with the perspective of society ''as a whole''. "Social production" involves a complicated and interconnected [[division of labour|division of labor]] of a wide variety of people who depend on each other for their survival and prosperity.
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| [[Abstract labour and concrete labour|"Abstract" labor]] refers to a characteristic of [[commodity]]-producing labor that is shared by all different kinds of heterogeneous (concrete) types of labor. That is, the concept abstracts from the ''particular'' characteristics of all of the labor and is akin to average labor.
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| "Socially necessary" labor refers to the quantity required to produce a commodity "in a given state of society, under certain social average conditions or production, with a given social average intensity, and average skill of the labour employed."<ref>"[http://www.marxists.org/archive/marx/works/1865/value-price-profit/ch02.htm#c6 Value, Price and Profit] ch 6</ref> That is, the value of a product is determined more by societal standards than by individual conditions. This explains why technological breakthroughs lower the price of commodities and put less advanced producers out of business. Finally, it is not labor per se, which creates value, but labor power sold by free wage workers to capitalists. Another distinction to be made is that between [[Unproductive labour in economic theory|productive and unproductive labor]]. Only wage workers of productive sectors of the economy produce value.<ref group=note>For the difference between wage workers and working animals or [[slave]]s confer: John R. Bell: Capitalism and the Dialectic - The Uno-Sekine Approach to Marxian Political Economy, p. 45. London, Pluto Press 2009</ref>
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| ==Criticisms==
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| {{main|Criticisms of the labour theory of value}}
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| Many liberal economists believe that the Marxist labor theory of value has been "discredited".<ref name=sep>{{cite web|url=http://plato.stanford.edu/entries/marx/|title=Karl Marx – Stanford Encyclopaedia of Philosophy}}. First published Tue Aug 26, 2003; substantive revision Mon Jun 14, 2010. Accessed March 4, 2011.</ref> The labor theory of value has been seen by some to predict that profits will be higher in labor-intensive industries than in capital-intensive industries, and empirical data contradicts this. This is sometimes referred to as the "Great Contradiction."{{citation needed|date=May 2013}} In volume 3 of Capital, Marx attempts to explain why profits are not distributed according to which industries are the most labor-intensive and why this is consistent with his theory. Whether or not this is consistent with the labor theory of value as presented in volume 1 has been a topic of debate.<ref>Böhm von Bawerk, "Karl Marx and the Close of His System" [[Karl Marx and the Close of His System]]</ref> According to Marx, surplus value is extracted by the capitalist class as a whole and then distributed according to the amount of total capital, not the just variable component. In the example given earlier, of making a cup of coffee, the constant capital involved in production is the coffee beans themselves, and the variable capital is the value added by the coffee maker. The value added by the coffee maker is dependent on its technological capabilities, and the coffee maker can only add so much total value to cups of coffee over its lifespan. The amount of value added to the product is thus the amortization of the value of the coffeemaker. We can also note that not all products have equal proportions of value added by amortized capital. Capital intensive industries such as finance may have a large contribution by capital, while labor-intensive industries like traditional agriculture would have a relatively small one.<ref>Ekelund, Jr., Robert B. and Robert F. Hebert (1997, 4th ed), ''A History of Economic Theory and Method'', pp. 239-241</ref>
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| Within [[anarchist economics]] [[anarcho-communism]] has criticized and rejected the labour theory of value. The difference between [[collectivist anarchism]] and anarchist communism is that under the former, a wage system is retained based on the amount of labor performed. Anarchist communism, like collectivist anarchism, also advocates for the socialization of production, but the distribution of goods as well. Instead of 'to each according to his labor', in anarcho-communism the community would supply the subsistence requirements to each member free of charge according to the maxim 'to each according to his needs'.<ref>This paragraph sourced by Shatz, Marshall; Guess, Raymond; Skinner, Quentin. The Conquest of Bread and Other Writings. Cambridge University Press. p. xvi</ref> Anarcho-communists believe that subsistence, productive and distributive property should be common or social possessions while [[personal property]] should be private possessions.<ref>What is Anarchism?, p. 217</ref>
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| Nonetheless, many elements of the theory are still believed to be valid, or the theory is presented in a non-Marxist tradition.<ref group=note>Confer: Weizsäcker, Carl Christian von (2010): A New Technical Progress Function (1962). German Economic Review 11/3 (first publication of an article written in 1962); Weizsäcker Carl Christian von, and Paul A. Samuelson (1971): A new labor theory of value for rational planning through use of the bourgeois profit rate. Proceedings of the National Acadademy of Sciences U S A. [http://www.ncbi.nlm.nih.gov/pmc/articles/PMC389151/ download of facsimile]</ref> For instance [[Mutualism (economic theory)|mutualist]] [[anarchist]] theorist [[Kevin Carson]]'s ''[[Studies in Mutualist Political Economy]]'' opens with an attempt to integrate [[marginalist]] critiques into the labor theory of value.<ref>Kevin A. Carson, ''[http://www.mutualist.org/id112.html Studies in Mutualist Political Economy]'' chs. 1-3</ref>
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| ==See also==
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| {{Portal|Business and economics}}
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| *[[Abstract labour and concrete labour|Abstract labor and concrete labor]]
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| *[[Cost the limit of price]]
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| *[[Division of labor]]
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| *[[Law of value]]
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| *[[Prices of production]]
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| *[[Producerism]]
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| *[[Productive and unproductive labour|Productive and unproductive labor]]
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| *[[Social division of labor]]
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| *[[Surplus labour|Surplus labor]]
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| *[[Surplus product]]
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| *[[Surplus value]]
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| *[[Transformation problem]]
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| *[[Value-form]]
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| ===Competing theories===
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| *[[Anarcho-communism]]
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| *[[Criticisms of the labour theory of value|Criticisms of the labor theory of value]]
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| *[[Marginalism]]
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| *[[Neo-Ricardianism]]
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| *[[Subjective Theory of Value]]
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| *[[Entitlement theory]]
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| ==Notes==
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| {{Reflist|group=note}}
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| ==References==
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| {{Reflist|30em}}
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| ==Further reading==
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| * Bhaduri, Amit. 1969. "On the Significance of Recent Controversies on Capital Theory: A Marxian View." ''Economic Journal''. 79(315) September: 532-9.
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| * [[Eugen von Böhm-Bawerk|von Böhm-Bawerk, Eugen]] [http://www.marxists.org/subject/economy/authors/bohm/ ''Karl Marx and the Close of His System''] (Classic criticism of Marxist economic theory)
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| * —. [http://www.econlib.org/library/BohmBawerk/bbCI.html Capital and Interest: A Critical History of Economical Theory]
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| * [[G. A. Cohen]] 'The Labour Theory of Value and the Concept of Exploitation', in his ''History Labour and Freedom''
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| * Duncan, Colin A. M. 1996. ''The Centrality of Agriculture: Between Humankind and The Rest of Nature.'' Mc-Gill-Queen’s University Press, Montreal.
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| * --2000 The Centrality of Agriculture: History, Ecology and Feasible Socialism. Socialist Register, pp. 187–205.
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| * --2004 Adam Smith’s green vision and the future of global socialism. In Albritton, R; Shannon Bell; John R. Bell; and R. Westra [Eds.] ''New Socialisms: Futures Beyond Globalization. ''New York/London, Routledge. pp. 90–104.
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| * {{Citation
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| | surname=Dussel
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| | given=Enique
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| | title=The four drafts of '"Capital"
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| | journal = Rethinking Marxism
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| | volume = 13
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| | issue = 1
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| | year = 2002
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| | page =10.
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| | url=http://www.mtholyoke.edu/~fmoseley/Dussel.pdf
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| | accessdate=August 3, 2006}}
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| *Eldred, Michael (1984) [http://www.arte-fact.org/ccfbdspf.html ''Critique of Competitive Freedom and the Bourgeois-Democratic State: Outline of a Form-analytic Extension of Marx's Uncompleted System'']. With an Appendix 'Value-form Analytic Reconstruction of the Capital-Analysis' by Michael Eldred, Marnie Hanlon, Lucia Kleiber and Mike Roth, Kurasje, Copenhagen. Emended, digitized edition 2010 with a new Preface, lxxiii + 466 pp. ISBN 87-87437-40-6, ISBN 978-87-87437-40-0.
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| * Ellerman, David P. (1992) Property & Contract in Economics: The Case for Economic Democracy. Blackwell. Chapters 4,5, and 13 critiques of LTV in favor of the labor theory of property.
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| * Engels, F. (1880). [http://www.marxists.org/archive/marx/works/1880/soc-utop/ ''Socialism: Utopian and Scientific'']
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| * Freeman, Alan: ''Price, value and profit - a continuous, general treatment.'' In: Alan Freeman, Guglielmo Carchedi (editors): ''Marx and non-equilibrium economics.'' [[Edward Elgar Publishing]]. Cheltenham, UK, Brookfield, US 1996. ISBN 9781858982687
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| * Hagendorf, Klaus: [http://eurodos.chez-alice.fr/docu/econ/hagendorf_labour_theory_of_value_42008.pdf The Labour Theory of Value. A Historical-Logical Analysis. Paris: EURODOS; 2008.]
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| * Hagendorf, Klaus: [http://ssrn.com/paper=1489383 Labour Values and the Theory of the Firm. Part I: The Competitive Firm. Paris: EURODOS; 2009.]
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| * Henderson, James M.; Quandt, Richard E. 1971: Microeconomic Theory - A Mathematical Approach. Second Edition/International Student Edition. McGraw-Hill Kogakusha, Ltd.
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| * Keen, Steven [http://www.debunking-economics.com/Papers/Marx/Keen_Marx_Thesis.pdf Use, Value, and Exchange: The Misinterpretation of Marx]
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| * {{Citation
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| | surname=Marx
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| | given=Karl
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| | authorlink=Marx, Karl
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| | editor=Frederick Engels
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| | others=Samuel Moore and Edward Aveling
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| | title=Capital : Volume 1
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| | url=http://www.marxists.org/archive/marx/works/1867-c1/
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| | accessdate=July 5, 2006
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| | year=1867
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| | isbn=0-394-72657-X
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| | publisher=Marxist.org }} ([Internet edition: 1999] [1887 English edition])
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| * —[http://www.econlib.org/library/YPDBooks/Marx/mrxCpAtoc.html ''Capital''], Complete in Three volumes. Frederick Engels, editor, 1867-1894. Definitive Kerr Edition, in English, as re-issued 1906-1909.
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| ** [http://www.econlib.org/library/YPDBooks/Marx/mrxCpA.html ''Capital'', Volume 1] 1867
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| ** [http://www.econlib.org/library/YPDBooks/Marx/mrxCpB.html ''Capital'', Volume 2] 1885
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| ** [http://www.econlib.org/library/YPDBooks/Marx/mrxCpC.html ''Capital'', Volume 3] 1894
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| * — (1863) [http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ch20.htm#vol32-p312 ''Theories of Surplus Value'']
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| * — [http://www.marxists.org/archive/marx/works/1847/wage-labour/index.htm ''Wage Labour and Capital'']
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| * — [http://www.marxists.org/archive/marx/works/1875/gotha/ch01.htm Critique of the Gotha Program]
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| * Ormazabal, Kepa M (2004). [http://www.ehu.es/kormazabal/SmithOnLaborValue.pdf ''Smith On Labour Value''] Bilbo, Biscay, Spain: University of the Basque Country Working Paper.
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| * Parrington [http://xroads.virginia.edu/~Hyper/Parrington/vol1/bk02_01_ch03.html Title Unavailable]
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| * Prychitko, David L. [http://www.econlib.org/library/Enc/Marxism.html Marxism] see section 1: "The Labor Theory of Value"
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| * {{Citation
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| | surname=Ricardo
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| | given=David
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| | authorlink=David_Ricardo
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| | title=On the Principles of Political Economy and Taxation
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| | url=http://www.marxists.org/reference/subject/economics/ricardo/tax/index.htm
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| | accessdate=August 3, 2006
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| | year=1817
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| | isbn= 0-486-43461-3
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| | publisher=Marxist.org }}
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| * Rubin, I.I. [http://www.marxists.org/subject/economy/rubin/ch12.htm Commentary on Marx's form and content of value] (accessible read)
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| * [[Anwar Shaikh (Economist)|Shaikh, Anwar]] (1998). "The Empirical Strength of the Labour Theory of Value" in ''Conference Proceedings of Marxian Economics: A Centenary Appraisal'', Riccardo Bellofiore (ed.), Macmillan, London
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| * {{Citation
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| | surname=Smith
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| | given=Adam
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| | authorlink=Adam_smith
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| | title=An Inquiry into the nature and causes of the wealth of nations
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| | url=http://www.adamsmith.org/smith/won-index.htm
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| | accessdate=August 3, 2006
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| | year=1776
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| | isbn= 1-4043-0998-5
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| | publisher=AdamSmith.org}}
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| * [[Fernando Vianello|Vianello, F.]] [1987], “Labour theory of value”, in: Eatwell, J. and Milgate, M. and Newman, P. (eds.): ''The New Palgrave: A Dictionary of Economics'', Macmillan e Stockton, London e New York, ISBN 978-09-35-85910-2.
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| * Wolff, Jonathan (2003). [http://plato.stanford.edu/entries/marx/#3" ''Karl Marx''] in ''Stanford Encyclopedia of Philosophy''
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| * {{Citation | doi = 10.1215/00182702-14-4-564 | author = Wolff, Richard D., Bruce B. Roberts and Antonio Callari | year = 1982 | title = Marx's (not Ricardo's) 'Transformation Problem': A Radical Reconceptualization | url = | journal = History of Political Economy | volume = 14 | issue = 4| pages = 564–82 | postscript = . }}
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| ==External links==
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| * [http://www.marxists.org/ The Marxists Internet Archive]
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| * [http://minerva.simons-rock.edu/~eatonak/LTV-FAQ.html Robert Vienneau's LTV FAQ]
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| * [http://myweb.lmu.edu/JDevine/notes/Law-of-Value.html Jim Devine's alternative view of Marx's LTV]
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| * [http://homepages.luc.edu/~dschwei/cottoncornlabor.htm Cotton, Corn, Labor]
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| * [http://www.ernestmandel.org/en/works/txt/1967/intromarxisteconomic/1.htm ErnestMandel.org]
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| {{DEFAULTSORT:Labor Theory Of Value}}
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| [[Category:Labor]]
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| [[Category:History of economic thought]]
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| [[Category:Marxist theory]]
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| [[Category:Value]]
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| [[Category:Classical economics]]
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| [[Category:Value theory]]
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