Everything Wrong With the Labor Theory of Value
Marx didn’t invent the labor theory of value: That work was done by Adam Smith, John Locke, David Ricardo, and others. But he gave it his own spin. And the gist is easy enough to understand. The value of any good is equal to the amount of labor, measured in hours, a laborer puts into it. On the surface, this is not a ludicrous way to think about things. You put in the work making a widget, so the value of that widget is equal to the amount of time you put into it. This makes even more sense, superficially, if your conception of work involves artisans—like cobblers, or even self-employed dilettante writers like Marx—working by themselves and doing “all” the work in the production process.
The scare quotes around “all” in the above sentence points to the first problem. LTV doesn’t take into account all of the other inputs in any product. For Marx, the ownership class was nothing more than a parasitic cabal of exploiters, making a profit off other peoples’ labor. After all, if all the value of a product comes from the sweat equity of the worker, the guy who sells the product at a profit is stealing value from the worker. But did the High Sparrow breed, feed, slaughter and skin the cows from whence he got his leather? Did he make the awls and thread he used to make the shoes? For the Marxist is this isn’t an insurmountable objection. Those inputs each have their own intrinsic labor-value and the people who sold them to the Sparrow at a profit probably exploited someone else—certainly the cows!—upstream in the supply chain. Hence exploitation is inherent throughout the capitalist system!
But the problems with LTV don’t end there. The notion that all profit is exploitative assumes that the owners of capital bring no value to the process. If you own a shoe factory, you’re the one who pays for the transportation to bring the shoes to market. You pay for advertising. You pay the rent and the light bill for the factory. If you’re talented, you implement procedures and efficiencies up and down the supply chain and the manufacturing process that increase profits and make not only wages but new hires possible.
There’s also the indelicate issue of merit. There’s a deep irony embedded in Marxist thought. It sees itself as an enemy of the “commodification” of human beings that is supposedly inherent in capitalism. But the labor theory of value assumes all labor is essentially equal. If one worker makes more or better shoes in the same amount of time as another worker, why should their effort be valued equally? Some workers are more valuable than other workers. That doesn’t make them more valuable human beings, but it does make them more valuable workers and it is a strange definition of fairness that treats them equally. It’s also an idiotic way to organize a business, which is one reason the Soviet Union was plagued with workers who understood that doing the bare minimum to reach their quota of labor was smart. I don’t think this is a controversial insight—or at least it shouldn’t be.
And what about the inventor? In a world without light bulbs, the guy who invents the light bulb creates enormous value for a society lit only by fire. Is it really true that the workers on the assembly line are the only creators of value? And what about the entrepreneur? Starting a new business involves investment, ingenuity and most of all risk—both financial and reputational (a fact that is no longer theoretical for me as a co-founder of The Dispatch). Bringing a new product to market, or an existing product in a better way, is not just a kind of invention, it is an effort to bring new value to existing customers.
Finally, the whole talk of “value” ignores the role of price. Prices are of course heavily influenced by the costs of production. But they are ultimately determined by demand. According to the labor theory of value, if I work tirelessly on a new line of saddles for basset hounds, the value is determined by the time it takes me to manufacture each saddle. But the price is determined by whether or not anybody wants to buy a device the basset won’t wear and no one can use. They’ll mostly stay on the shelves, despite the fact they are as “valuable” as something that takes the same amount of effort to make.
Regardless, in an age that makes the lessons of I, Pencil an understatement by comparison, it’s simply ludicrous to talk about the labor theory of value, because virtually nothing is made independently of a million or billion other inputs. The days when the labor theory of value at least made superficial sense are not just in the rearview mirror, they’ve dipped behind the horizon behind us entirely.