What’s Wrong With The Labor Theory Of Value

For the purposes of this post, we can get some idea of Karl Marx’s labor theory of value by looking at the internet for a few sources.

The WikiPedia article Surplus value gives me this excerpt.

According to Marx’s theory, surplus value is equal to the new value created by workers in excess of their own labor-cost, which is appropriated by the capitalist as profit when products are sold.

Karl Marx’s Critique of the Gotha Programme I took this excerpt.

“Starting from these basic principles, the German workers’ party strives by all legal means for the free state—and—socialist society: that abolition of the wage system together with the iron law of wages — and—exploitation in every form; the elimination of all social and political inequality.”

From an English translation of Karl Marx’s book Capital – Chapter Eight: Constant Capital and Variable Capital i took this excerpt.

The labourer adds fresh value to the subject of his labour by expending upon it a given amount of additional labour, no matter what the specific character and utility of that labour may be. On the other hand, the values of the means of production used up in the process are preserved, and present themselves afresh as constituent parts of the value of the product; the values of the cotton and the spindle, for instance, re-appear again in the value of the yarn. The value of the means of production is therefore preserved, by being transferred to the product. This transfer takes place during the conversion of those means into a product, or in other words, during the labour-process. It is brought about by labour; but how?

I take my own understanding of the stock market to shed some light on the fallacy of talking about value as a fixed quantity that can be calculated or even estimated.

In a fair stock market transaction, you have a seller that is willing to sell a stock at a price and a buyer who is willing to buy that stock at that price. There are many reasons why one person is willing to sell the stock and the buyer is willing to buy the stock at an agreed upon price. One reason may be a difference of opinion on what the future holds for that stock. Even if there is no difference of opinion on the future, the buyer and seller have different goals they are trying to achieve. In the case of a younger buyer with a long investment horizon and no need for the cash immediately, the goal may be total return on the investment. For an older, retired investor who wants to use the money from the stock as income, the immediate dividend payments during the retiree’s lifetime may be of more concern than the possible total returns. So the buyers and the sellers can agree on one price that is a good value for buyer to buy the stock, and the other sees that price as a good value to sell the stock.

Both can come away from the transaction completely satisfied with the result of the trade of stock for money. Neither one of them has to feel exploited by the transaction.

Extending this to the wages, the worker can put a value on her or his labor that she or he is selling it for, and the employer can come to an agreement to pay that wage as a good value to buy the labor. Neither one is necessarily being exploited.

None of this says that a buy/sell situation cannot be exploitation of one side or the other, or even both sides. However, calculating a “value” is not independent from whose side of the transaction is doing the calculating. In real life, it is not so easy to figure out what the “value” of anything is. Any system that depends on being able to make such a calculation is not something that can be automated by a robot with no idea of the human part of the equation.

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