Editing Labor theory of value (section)

== History ==
=== Origins ===
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. Aristotle is claimed to hold to this view.<ref>{{cite book |last=MacIntyre |first=A. |year=1988 |title=Whose Justice Which Rationality |location=Notre Dame |publisher=[[University of Notre Dame]] |page=199 |isbn=978-0-268-01942-6}}</ref> Some writers trace its origin to [[Thomas Aquinas]].<ref>{{cite book |last=Russell |first=Bertrand |author-link=Bertrand Russell |year=1946 |title=History of Western philosophy |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=978-0-415-09301-9}}</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 |first1=Austin J. |last1=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=978-1-4020-7516-2}}</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=978-0-88706-698-6 |page=114}}</ref> Scholars have also pointed to [[Sir William Petty]]'s ''Treatise of Taxes'' of 1662<ref>{{cite book |volume=I |first=Vernon L. |last=Parrington |title=Main Currents in American Thought, 1620-1800 |year=1927 |url=http://xroads.virginia.edu/~Hyper/Parrington/vol1/bk02_01_ch03.html |at=Book Two, Part One, Chapter III. Benjamin Franklin: Our First Ambassador |archive-url=https://web.archive.org/web/20191024162257/http://xroads.virginia.edu/~hyper/Parrington/vol1/bk02_01_ch03.html |archive-date=24 October 2019}}</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>{{cite book |first=Karl |last=Marx |author-link=Karl Marx |title=Value, Price and Profit |title-link=Value, Price and Profit |date=1865 |chapter=VI}}</ref>

[[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 equaled 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 name="ormazabal" />

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>{{cite web|url=http://cepa.newschool.edu/het/schools/neoric.htm |title=The Neo-Ricardians |access-date=2004-08-23 |url-status=bot: unknown |archive-url=https://web.archive.org/web/20090418155154/http://cepa.newschool.edu/het/schools/neoric.htm |archive-date=April 18, 2009 |publisher=[[New School University]]}}</ref>

Based on the discrepancy between the wages of labor and the value of the product, the "[[Ricardian socialists]]"—[[Charles Hall (economist)|Charles Hall]], [[Thomas Hodgskin]], [[John Gray (19th century socialist)|John Gray]], and [[John Francis Bray]], and [[Percy Ravenstone]]<ref>{{cite web|url=http://cepa.newschool.edu/het/schools/utopia.htm |title=Utopians and Socialists: Ricardian Socialists |access-date=2015-07-12 |url-status=bot: unknown |archive-url=https://web.archive.org/web/20040214153800/http://cepa.newschool.edu/het/schools/utopia.htm |archive-date=February 14, 2004 |publisher=History of Economic Thought, [[New School University]]}}</ref>—applied Ricardo's theory to develop theories of [[Exploitation of labour|exploitation]].

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.{{cn|date=March 2025}}

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.{{cn|date=March 2025}}

=== Adam Smith and David Ricardo ===
Adam Smith held that, in a [[Urgesellschaft|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 name="Whitaker History and Criticism pp15-16">{{cite book |doi=10.7312/whit91420 |date=1904 |isbn=978-0-231-88365-8 |last1=Whitaker |first1=Albert C. |title=History and Criticism of the Labor Theory of Value in English Political Economy |publisher=Columbia University Press |pages=15–16 }}</ref> According to Whitaker, Smith is claiming that 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 name="Whitaker History and Criticism pp15-16"/>

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 on the greater or less compensation which is paid for that labour."<ref>{{Cite book |title=On The Principles of Political Economy and Taxation |first=David |last=Ricardo |year=1817 |url=https://www.marxists.org/reference/subject/economics/ricardo/tax/ch01.htm |access-date=August 19, 2020 |via=[[Marxists Internet Archive]]}}</ref> In this connection Ricardo seeks to differentiate the quantity of labour necessary to produce a commodity from the wages paid to the laborers for its production. Therefore, wages did not always increase with the price of a commodity. However, Ricardo was troubled with some deviations in prices from proportionality with the labor required to produce them.<ref>{{cite book |doi=10.1057/978-1-349-95121-5_1054-2 |date=2008 |isbn=978-1-349-95121-5 |last1=Vianello |first1=Fernando |title=The New Palgrave Dictionary of Economics |chapter=Labour Theory of Value |publisher=Palgrave Macmillan UK |location=London |authorlink1=Fernando Vianello |pages=233–246 }}</ref> 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 goods|luxury]] product increases its [[exchange-value]] by mere prestige.

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.{{fact|date=May 2025}}

It is arguable to what extent these classical theorists held the labor theory of value as it is commonly defined.<ref>{{cite book |doi=10.7312/whit91420 |date=1904 |isbn=978-0-231-88365-8 |last1=Whitaker |first1=Albert C. |title=History and Criticism of the Labor Theory of Value in English Political Economy |publisher=Columbia University Press }}{{pn|date=April 2025}}</ref><ref>{{cite journal |last1=Gordon |first1=Donald F. |title=What Was the Labor Theory of Value? |journal=The American Economic Review |date=1959 |volume=49 |issue=2 |pages=462–472 |jstor=1816138 }}</ref><ref>King, Peter and Ripstein, Arthur. [http://individual.utoronto.ca/pking/unpublished/LTV.pdf "Did Marx Hold a Labor Theory of Value?"] University of Toronto</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>{{cite book |last1=Canterbery |first1=E. Ray |title=Brief History Of Economics, A: Artful Approaches To The Dismal Science |date=2001 |publisher=World Scientific Publishing Company |isbn=978-981-310-547-8 |pages=52–53 }}</ref>

=== Anarchism ===
{{See also|Anarchist economics|Cost the limit of price}}
[[File:LaborNote.JPG|thumb|left|Sample labor for [[labor note]] for the [[Cincinnati Time Store]]. Scanned from ''Equitable Commerce'' (1846) by [[Josiah Warren]]]]
[[Pierre Joseph Proudhon]]'s [[Mutualism (economic theory)|mutualism]]<ref>{{cite web |quote=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. |url=http://www.inclusivedemocracy.org/dn/vol6/takis_proudhon.htm |title=Beyond Marx and Proudhon |author-link=Takis Fotopoulos |first=Takis |last=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] {{webarchive|url=https://web.archive.org/web/20130315000327/http://www.infoshop.org/page/AnarchistFAQSectionG1 |date=2013-03-15 }}</ref> adopted the labor theory of value of [[classical economics]] and used it to criticize capitalism while 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] {{webarchive|url=https://web.archive.org/web/20130315000327/http://www.infoshop.org/page/AnarchistFAQSectionG1 |date=2013-03-15 }}</ref>

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) [https://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, {{cite web|url=http://libertarian-labyrinth.org/warren/1stAmAnarch.pdf |title=Archived copy |access-date=2013-06-17 |url-status=dead |archive-url=https://web.archive.org/web/20120204155505/http://libertarian-labyrinth.org/warren/1stAmAnarch.pdf |archive-date=2012-02-04 }} ''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 Warren, indicating a ([[linguistic prescription|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]], [[economic rent|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] {{Webarchive|url=https://web.archive.org/web/19980206075653/http://flag.blackened.net/daver/anarchism/mcelroy1.html |date=1998-02-06 }}," 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 stayed open for three years; after it closed, Warren could pursue establishing colonies based on 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>{{cite journal |last1=Madison |first1=Charles A. |title=Anarchism in the United States |journal=Journal of the History of Ideas |date=1945 |volume=6 |issue=1 |pages=46–66 |doi=10.2307/2707055 |jstor=2707055 }}</ref>

Mutualism is an [[economics|economic theory]] and [[anarchist 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 |access-date=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]].

[[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 labor groups and the free communes&nbsp;... based on the distribution of goods according to the labor contributed".<ref>{{cite web|author=Darby Tillis |url=http://www.infoshop.org/page/AnarchistFAQSectionA3 |title=An Anarchist FAQ |publisher=Infoshop.org |access-date=2010-09-20 |url-status=dead |archive-url=https://web.archive.org/web/20101123103313/http://www.infoshop.org/page/AnarchistFAQSectionA3 |archive-date=2010-11-23 }}</ref>

=== Karl Marx<!--'Marx's theory of value', 'Marxian theory of value' and 'Marxist theory of value' redirect here--> ===
Contrary to popular belief, Marx never used the term "labor theory of value" in any of his works, but used the term [[law of value]];<ref>cf [[E F Schumacher]],''[[Small Is Beautiful]]'', Pt 1, ch 1. Mike Beggs, "Zombie Marx and Modern Economics, or How I Learned to Stop Worrying and Forget the Transformation Problem." ''Journal of Australian Political Economy'', issue 70, Summer 2012/13, p. 16 [http://australianpe.wix.com/japehome#!current/c1cok]</ref><ref>{{cite journal |last1=Mongiovi |first1=Gary |title=Vulgar economy in Marxian garb: a critique of Temporal Single System Marxism |journal=Review of Radical Political Economics |date=September 2002 |volume=34 |issue=4 |pages=393–416 |doi=10.1016/S0486-6134(02)00176-6 }}</ref><ref>{{cite journal |last1=Beggs |first1=Mike |title=Zombie Marx and modern economics, or how i learned to stop worrying and forget the transformation problem |journal=The Journal of Australian Political Economy |date=8 November 2020 |issue=70 |pages=11–24 |id={{Gale|A318902338}} {{ProQuest|1274649717}} |url=https://search.informit.org/doi/abs/10.3316/INFORMIT.042280767799732 }}</ref> Marx opposed "ascribing a supernatural creative power to labor", arguing as such:
<blockquote>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">{{cite book |chapter-url=http://www.marxists.org/archive/marx/works/1875/gotha/ch01.htm |title=[[Critique of the Gotha Program]] |chapter=1 |via=[[Marxists Internet Archive]] |first=Karl |last=Marx |author-link=Karl Marx |date=1875}}</ref></blockquote>

Here, Marx was distinguishing between [[exchange value]] (the subject of the LTV) and [[use value]]. Marx used the concept of "[[socially necessary 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 labor]] of a wide variety of people who depend on each other for their survival and prosperity. [[Abstract labor and concrete labor|"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.

"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 labor employed."<ref name="marxprofit" /> 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 that creates value, but labor power sold by free wage workers to capitalists. Another distinction is between [[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> According to Marx an increase in productiveness of the laborer does not affect the value of a commodity, but rather, increases the surplus value realized by the capitalist.<ref>If therefore, the capitalist who applies the new method, sells his commodity at its social value of one shilling, he sells it for threepence above its individual value, and thus realises an extra surplus-value of threepence. On the other hand, the working day of 12 hours is, as regards him, now represented by 24 articles instead of 12. Hence, in order to get rid of the product of one working day, the demand must be double what it was, i.e., the market must become twice as extensive. (Marx et al., 1974)</ref> Therefore, decreasing the cost of production does not decrease the value of a commodity, but allows the capitalist to produce more and increases the opportunity to earn a greater profit or surplus value, as long as there is demand for the additional units of production.