The falsity of the labour theory of value

Marx’s argument—as set out in the first chapter of Das Kapital—for the labour theory of value is based on three false claims. The first is:

The utility of a thing makes it a use value. But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity.

This is wrong, for utility is utility to someone. The utility comes from its connection to their purposes. So, the utility of a thing does have existence apart from that commodity, it exists in the relation of the thing to the purposes of anyone who has a use for it.

The second is:

…[commodities of equal value] must, as exchange values, be replaceable by each other, or equal to each other. Therefore, first: the valid exchange values of a given commodity express something equal; secondly, exchange value, generally, is only the mode of expression, the phenomenal form, of something contained in it, yet distinguishable from it.

Which is equally wrong, since variation in value (between people, across time and space) is what drives trade in the first place. Each person trades something that they value less for something they value more: the exchange value is a point of intersection. There can be no trade without such variation. Indeed, much of commerce is finding people who put an intersecting valuation on things you want to exchange: hence the gains from trade (each person ending up with something they value more than what they gave up). If there were genuine indifference by both parties to each item (i.e. they both valued them equally), the exchange would not be worth the bother. Trade began operating across vast differences comparatively early in human history precisely because things increase in exchange value the more scarce they are—hence trade items moving from places of less scarcity to places of more, in long chains of shifting intersections of different valuations. Marx’s finding of some “common quality” creating some equality in exchange does not define the nature of exchange, it abolishes its underlying reality and driver.

What both these errors do is separate exchange value from what people want. The subjective element of value is replaced by a (spurious) objectivity.

The third false claim is:

… if then we leave out of consideration the use value of commodities, they have only one common property left, that of being products of labour.

Which is also not true. Commodities also have the qualities of being made of materials (what economists call ‘land’) and by tools (what economists call ‘capital’): labour on its own produces little or nothing.

Even more basically, to be exchanged, such things have to be controlled by someone. Locke’s metaphor that a person in the state of nature acquires something by “mixing his labour” with it is misleading: what they do is take control of it. Any contribution of labour to exchange—whether in production or the realisation of value in exchange—is framed by such control: as is also true of land and capital.* Moreover, the control has to matter: the thing has to have sufficient scarcity and be sufficiently wanted by someone for such control to matter. We can control a twig, but who cares? Control, scarcity and wanting are the bases of exchange value.

Having, in fact, not established the labour theory of value, Marx is confronted with the problem that not everything with exchange value is the product of labour, not everything produced by labour has value and the exchange value of something can shift dramatically after it has been produced. So, to maintain his theory, Marx cannot use the term labour (or, for that matter, value) in the way they are normally used. Hence we end up with labour in Marxian economic theory meaning socially necessary abstract labour time: a rather odd, “Platonic form” of labour. The socially necessary part being rhetorically necessary, as it allows labour to be redefined so it “fits” with the evidence. (How do we know any given bit of labour is “socially necessary”? Why, because it produces something of value, of course!)

If one is so gauche as to argue against the labour theory of value by referring to labour as it actually appears in an economy, one finds that one has so misunderstood. Even though Marx and his followers promptly draw moral implications which are precisely anchored in labour-as-what-workers-do, it is simply not kosher to infer back from that, that labour in Marxian economics means what you would ordinarily think it means. Marxism uses the notion of “labour” as what-workers-do to get its moral rhetoric working—but shifts to socially necessary abstract labour time whenever that gets awkward. It invokes the power of particular words (‘labour’, ‘value’) but evades the meaning that gives them that power.

When arguing with Marxists and Marxians, it is very easy to get lost in their logical traps. They certainly are.

* Locke's metaphor has had a long and deleterious effect on the development of economic thought, since it encouraged looking at exchange as being a culmination of a productive process (which it may or may not be, and to varying degrees of success) rather than as a purposive act of (changing) control, which it always is. The importance of economic property rights (who has actual control of something) is brilliantly analysed in Yoram Barzel, The Economic Analysis of Property Rights, part of the transaction costs revolution which is steadily transforming economics. Barzel demonstrates that economic property rights are basic to economic analysis, not some ancillary add-on.

ADDENDA Adam Smith scholar Gavin Kennedy argues, very plausibly, that Smith did not hold a labour theory of value. Smith viewed labour as a measure of value, not a source of it. If one reads the key passage in The Wealth of Nations, this seems correct:

The real price of everything what everything 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, who want 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. What is bought with money or with goods is purchased by labour as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity. Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased; and its value, to those who posses it and who want to exchange it for some new production is precisely equal to the quantity of labour which it can enable them to purchase or command. ( WN I.v.2: 47-48)

Smith's thinking strikes me as a little confused, and one can see why a cursory reading might be taken as expressing labour as a source of value, but what Smith is about here is labour as a measure of value. Smith is, at least in part, expressing the notion of opportunity cost.