Friday, July 26, 2019

What's Wrong with the Labor Theory Value: An Answer for College Graduates Who Don't Know

A Twitter user named Jack Angstreich (@angstreich2) recently asked, “What argument establishes that Marx’s labor theory of value is false?” Essentially the same question was recently asked by at least two other Twitter users. Here’s my answer to Mr. Angstreich:

Presumably you and Ms. Attlee are college grasduates and possibly even possess graduate degrees. Yet your and her question betrays a shocking lack of education, comparable to someone asking where's the error in Ptolemaic astronomy.

I will first quote Marx on what the labor theory of value is and then offer two sets of refutations of it. (BTW, I use value and price as equivalent terms.)

WHAT MARX SAID: “The value of one commodity is to the value of any other, as the labour-time necessary for the production of the one is to that necessary for the production of the other.” [Google this to confirm it.]

FIRST CATEGORY OF OBJECTION: TIME AND THE RATE OF PROFIT. Prices (values) vary with the amount of time elapsing between the payment of wages and the sale of the resulting product. This implies that relative prices vary with the general rate of profit as well. Example:

A worker is paid $100 a day for working in a distillery. His job is loading raw whiskey into vats for ageing. He devotes equal time to loading vats that will age the whiskey for 8, 12, 20, and 40 years respectively. All four of the whiskeys will thus be products of equal labor.

Nevertheless, the price or value of these whiskeys will be very different. As far as it reflects this worker’s labor, at a rate of profit of 10%, the price of the whiskeys will be $25 x 1.1 to the 8th, 12th, 20th, and 40th powers respectively. [$25 is the $100 wage/4.]

At a rate of profit of 5%, there would be a different set of relative prices. All this implies that the rate of profit and the period of time over which production extends are factors determining the relative prices of commodities. These factors are present everywhere.

SECOND CATEGORY OF OBJECTION: PRICES DETERMINED BY SUPPLY AND DEMAND. The price of a Rembrandt painting, or anything else that exists in a given supply, is determined by supply and demand, not the quantity of labor required to produce it.

This category includes not only goods no longer capable of being produced, such as paintings by old masters and rare stamps and coins, but also agricultural commodities between harvests and everything traded on futures markets, such as petroleum and non-ferrous metals.

Even more importantly, it includes land and labor. Raw land is not the product of any labor at all, but often sells for huge sums of money, e.g., about $2K per sq. ft. in midtown Manhattan. Its value is determined by supply and demand (as is the value of improved land).

The value of LABOR is also determined by supply and demand. This is what explains why the wages of skilled labor are higher than those of unskilled labor and why those of the professions are higher than those of skilled labor.

Practically everyone is capable of doing unskilled work. Far fewer are willing and able to learn what is required to do skilled work. And far fewer still are willing and able to learn what is required to do such work as that of a doctor or lawyer.  

Marx admitted that skilled and professional-level workers earn more than unskilled workers. But he thought he could sidestep this fact by treating all labor above unskilled labor as multiplied unskilled labor and then never mentioning it again.

If one admits that the wages of doctors and lawyers, and plumbers and carpenters, are determined by supply and demand, then there is no basis for not applying the same principle to the wages of all labor. But Marx could not do this without abandoning his exploitation theory.

It’s absolutely vital for Marx’s exploitation theory that the value of at least all goods currently being produced be determined only by the quantity of labor required to produce them and the value of labor itself be determined by the quantity of labor required to produce it.

That way the value added at any stage of production is allegedly the result of nothing but the addition of fresh labor and the value of the fresh labor itself is that of the labor required to produce it. [Labor required to produce labor? What does Marx mean by this?]

the labour-time requisite for the production of labour-power reduces itself to that necessary for the production of those means of subsistence; in other words, the value of labour-power is the value of the means of subsistence necessary for the maintenance of the labourer.”

This is how Marx claims that to maximize profit, the capitalist extorts from the worker the maximum number of hours of labor possible, while paying him wages representing the number of hours of labor required to produce his minimum necessities.

The truth is that wages are determined by supply and demand and that capitalists are continuously increasing the supply of products relative to the supply of labor, thereby reducing prices relative to wages, and raising real wages.

The capitalists' success in raising real wages is what enables wage earners to be able to afford to take lower-paying jobs that offer shorter hours and improved working conditions that don’t pay for themselves, and to keep their children home longer and longer.

Be sure to read my thread at for a refutation of the idea that profits are stolen from wages. Learn how the original income of labor is profit not wages and how capitalists create the phenomena of wages and costs and thus reduce profits relative to sales.