What are the major criticisms of the Labour Theory of Value?

Question

Philosophically speaking it seems that the only & sole determinant of value of goods can only be Labour - through labour of the spirit, mind and hands. This truth is true only when labour is seen historically as Locke affirms when he wrote that property originally comes about by the exertion of labor upon natural resources.

One can see art & religion as labouring of the spirit, or the spirit labouring; Science, law & politics as labour of the mind; manufacture, violence & war as labour of the hands - inwardly and legally it is policing, the protection of property & law giving higher value; inwardly and illegally it is gangsterism - thus the appropriation of property by theft or extortion; outwardly it is war as conquest or defence, conquest being appropriation and defence as protection. etc. These manifestations are schematic as I have put them.

Presumably the substitution of spirit by abstract labour in Hegel's system is what makes the marxist theory of labour materialistic; but it does seems to me that substitution is not necessary but the abstraction still has its place.

Adam Smith applies this insight to commodities when he wrote in The Wealth of Nations:

The value of any commodity, therefore, 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

Implicit in this is distinction of use value which has both subjective & objective character - the objective use-value of water for example is to drink it or to water plants, the subjective use-value of a painting is ones own taste, or as marker of taste knowing no taste but knowing what taste-makers admire. This is contrasted with exchange value; in a barter-economy, one good is traded for another directly; in a money-economy a middle term is inserted and exchange value is expressed as price. All three terms here are objective.

Ricardo, deferring to Locke, historicises this argument in his Principles of Political Economy:

The exchangeable value of the commodities produced [is] in proportion to the labour bestowed on their production; not on their immediate production only, but on all those implements or machines required to give effect to the particular labour to which they were applied.

In Capital, Marx identifies the source of profit, which he calls surplus value, essentially by tying use-Value to the idea of subsistence - that is to subsist in the world. A Darwinian notion.

A man must feed and shelter and bring up the next generation - that is to subsist in the world. He trades his labour that allows this subsistence. His surplus labour is the source of surplus value which in a money economy is expressed as profit. This is as true as for the owner of a factory as it is for those who works in a factory.

All this appears fairly reasonable & unobjectionable to me - but presumably it's not - why?

Answer 1

In my view, the labor theory of value hasn't been dis-proven so much as it has simply fallen out of favor, for essentially practical reasons.

It is helpful to make the distinction between price and value, or to use Marx's terms, between exchange-value (the amount something is worth in money terms) and value (the average amount of labor time socially necessary to produce it). In theory, the relative prices of commodities in general result from their respective values. In reality, when we are talking about specific kinds of commodities, things get more complicated. The high price of a diamond or a Picasso painting may not correspond to their value, but those are not typical cases. There are different ways of addressing such exceptions that have been debated, particularly among Marxian discussions of the transformation problem.

But with this in mind, its also not difficult to see the real reason that labor theories of value in general have fallen out of favor. If you properly understand what is meant by the labor theory of value, you will quickly see that it is very difficult (perhaps impossible) to empirically measure the value of anything. In contrast, we have mountains of data about prices. So, economic theory in the twentieth century has increasingly worked its way around value in the classical sense, not so much disproveing its existence as finding a way to live without it. Modern economics shows us that studying prices instead of their underlying values can be relatively useful. Marxists and others who defend the labor theory could counter, however, that where economists have failed (e.g. their inability to predict financial crises) it is precisely because the underlying essence of value is still human labor.

Finally I would emphasize that Smith, Ricardo and Marx each developed their own theories of value. In that sense, I do not think that sweeping, general critiques of "the labor theory of value" in the singular make a whole lot of sense. Ricardo built on and critiqued Smith, rejecting parts of his theory, while Marx did the same to both of the other two. These theories are each quite different and I haven't seen a convincing, general critique that really applies to all three.

Answer 2

To be able to discuss this, one must investigate what "value" is. Obviously, value is not a physical quality of economic goods. So, what then is it?

Further, when Smith says

... is equal to the quantity of labour which it enables him to purchase or command ...

the question arises how to measure labour.

So, Ricardos statement,

"The exchangeable value of the commodities produced [is] in proportion to the labour bestowed on their production ..."

explains nothing. It is at best an observation (based on an estimation of a quantity, which is not explained), but it is far from establishing a causal relationship.

Answer 3

The labor-theory of value presupposes that there is reasonable equality between the value of labor of different laborers. But this is clearly wrong: an Einstein or Picasso or Mozart can produce works of immense perceived benefit for very little labor (comparatively).

Once you get into widely differing values of labor (due to talent, due to accessibility of natural resources, etc.), you lose most of the benefit of focusing exclusively on labor. How do you understand luxury items, for instance, which are in practice almost exclusively traded for small amounts of labor of the highly paid? How do you understand the appeal of limited resources like gold, diamonds, and rare earth metals, and the relative advantage of those who supply them? Of course you can call an average person-hour your standard unit of wealth instead of one dollar or the resources to raise an infant to an adult, but you're just picking another currency from among many possibilities.

There's also the thought experiment of a world where labor accomplished nothing (e.g. due to extensive automation). People would still value things differentially. And there's the neurophysiological evidence that dopamine pathways are heavily involved in the assessment of value, but it seems unlikely at best that labor alone counts as a cost in that system. (Though there are rodent experiments where they do pit rewards against labor, so it certainly plays a role even in rodents.)

So it's a useful idea but not the whole story. In a world of identically-capable individuals with uniformly distributed resources, maybe it would be the whole story. But that's not the world we live in.

Answer 4

Basically backing up @BrianZ, but there is a simpler way to put it. Marx did not live in a time where there was today's bizarre, excessive capacity for rapid production. Had he seen more modern economies, he would clearly have noted that things do not have value for which there is no market. He could overlook this and think he had explained it away, because Victorian leverage was nothing like modern leverage.

Half of modern economies' success relies upon creating demand. If the labor is invested in something for which the demand cannot be created, the value is lost, however much there was of it. And it cannot be recovered. So this loss is not a matter of exchange-rate, which is Marx's answer to this objection in his own time.

And even if the demand exists only at the whim of the entitled, it creates demand upon others, and gives use to things that would otherwise not have value. Again, this is not merely a difference in exchange rate. In any era, but especially since birth-control, intelligent poor people do or do not have children according whether industry seems ready to support them. This is real labor (and thus by Marx, value) that does or does not exist according to the market in a very literal way.

At the other extreme, if value somehow inheres in every product, then insane manifestos and elaborate works of art no one understands or cares for, somehow improve the world for the next generation. They capture the resources of an entire lifetime, often the time of someone supported by layers of lower-class workers or educated at great cost by big names, and entertained with complex pharmaceuticals and other highly intensive cultural artifacts. This adds up fast. But they are not implicitly valuable in any way. We know better. What they do instead, is keep those supporting structures employed and the rest of us distracted.

(This reminds me of a punny business mantra -- it isn't a sum, it is a product. The labor theory of value tries to reflect creative and intellectual input as additions to production labor, but in fact they are both leverage upon it. The formula is less "value = work + management + positioning", which Marx would require, and more "value = work * management * positioning". In particular, zero in any factor nets you zero.)