Labor Theory Of Value
What is the ‘Labor Theory Of Value ‘
The labor theory of value was an early attempt by economists to explain why goods were exchanged for certain prices on the market. It suggested the value of a commodity could be measured objectively by the average number of labor hours necessary to produce it. The best-known advocates of the labor theory were Adam Smith, David Ricardo and Karl Marx.
Explaining ‘Labor Theory Of Value ‘
Exchange values were a serious puzzle for early economic thinkers. If a horse cart traded for 20 ounces of gold but a pair of shoes only traded for 2 ounces, what made the horse cart 10 times as valuable as the shoes? The answer, according to the labor theory, is the horse cart took 10 times as much average labor to produce as the shoes.
Labor Theory and Marxism
The labor theory of value interlaced nearly every aspect of the Marxian analysis. Marx’s pinnacle economic work, “Das Kapital,” was almost entirely predicated on the tension between capitalist owners of the means of production and the labor power of the working class.
The Subjectivist Theory Takes Over
The labor theory’s problems were finally resolved by the subjective theory of value. This theory stipulates exchange value is not absolute but relative and based on individual subject evaluations. Value emerges from human perceptions of usefulness. Voluntary economic exchanges take place only when each trading partner subjectively values the other’s good more than his own.
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