Labor Theory of Value vs. Supply and Demand

[AK-1917]

I recently got into an argument with a capitalist about the Labor Theory of Value and its validity in modern economics. I told him that obviously labor is the only necessary variable to the value of a commodity, as demand for an object is not a part of the object itself. Marx used the example of linen and a coat to describe relative and equivalent values, so I tried to convince him using the argument that "The linen and the coat are in theory the same thing. The coat is just a form of the linen. Why, therefore, is the 'price' of the coat higher?"

He told me "Because I cannot make a coat out of linen myself. I need a someone to do that for me."

"That is precisely why labor input determines the value of a commodity."
We came to the conclusion that price must then be variable, independent of value.

Is this so? How do we, as Marxists, feel about the law of Supply and Demand? Do we reject it? Do we reconcile it somehow with the Labor Theory of Value?

[gla22]

Marx said nothing about getting rid of markets. The Labor Theroy of value is intensely flawed. The value of labor in an item dose not determine its true worth. If the LTV system was in play some goods would be worth more than others, even if they had the same labor price. These would be snatched up and sold for a profit. The LTV cannot determine a good price for products making the theory flawed. It also forgets that some labor is worth more than others ect. The LTV is incredibly flawed and markets are necessary to determine price. Government intervention is necessary to regulate the market but abolishing the market will result in economic failure.

[Dros]

Marx said nothing about getting rid of markets. The Labor Theroy of value is intensely flawed. The value of labor in an item dose not determine its true worth. If the LTV system was in play some goods would be worth more than others, even if they had the same labor price. These would be snatched up and sold for a profit. The LTV cannot determine a good price for products making the theory flawed. It also forgets that some labor is worth more than others ect. The LTV is incredibly flawed and markets are necessary to determine price. Government intervention is necessary to regulate the market but abolishing the market will result in economic failure.

The Labor Theory of Value isn't supposed to determine price. Price is not the same as value. The LTV explains where the profit (produced when someone pays the price and buys something) actually comes from.

So no, the LTV is not flawed, but yes, it can't define price.

Markets are also flawed. While they determine prices, they set up necessarily exploitative and anarchic relations of production. That is why socialists favor central planning to determine price. Central planning can do the job of a market (determine prices and set production) better than markets can without all of the exploitative relations inherent to a market method of exchange.

[ManyAntsDefeatSpiders]

In addition to what Drosera said, I would mention that Marx used the term homogeneous labour or the minimum necessary labour required to create a commodity - for example, if one man took particularly long to make a chair, that does not mean that the chair is more expensive. Nor does it mean a diamond is cheap if I happen to pick it up from the ground. On average, diamonds are expensive to expropriate.

Moreover, Marx did maintain that some forms of labour are more expensive than others:


What, then, is the cost of production of labor-power?

It is the cost required for the maintenance of the laborer as a laborer, and for his education and training as a laborer.

Therefore, the shorter the time required for training up to a particular sort of work, the smaller is the cost of production of the worker, the lower is the price of his labor-power, his wages. In those branches of industry in which hardly any period of apprenticeship is necessary and the mere bodily existence of the worker is sufficient, the cost of his production is limited almost exclusively to the commodities necessary for keeping him in working condition. The price of his work will therefore be determined by the price of the necessary means of subsistence. Here. (http://www.marxists.org/archive/marx/works/1847/wage-labour/ch03.htm)

Hence, if the job the worker is required to do is more complex or requires more training, the wage will likewise reflect this.

Further, Marx did account for supply and demand:


By the competition between buyers and sellers, by the relation of the demand to the supply, of the call to the offer. The competition by which the price of a commodity is determined is threefold.

The same commodity is offered for sale by various sellers. Whoever sells commodities of the same quality most cheaply, is sure to drive the other sellers from the field and to secure the greatest market for himself. The sellers therefore fight among themselves for the sales, for the market. Each one of them wishes to sell, and to sell as much as possible, and if possible to sell alone, to the exclusion of all other sellers. Each one sells cheaper than the other. Thus there takes place a competition among the sellers which forces down the price of the commodities offered by them.

But there is also a competition among the buyers; this upon its side causes the price of the proffered commodities to rise.

Finally, there is competition between the buyers and the sellers: these wish to purchase as cheaply as possible, those to sell as dearly as possible. The result of this competition between buyers and sellers will depend upon the relations between the two above-mentioned camps of competitors – i.e., upon whether the competition in the army of sellers is stronger. Industry leads two great armies into the field against each other, and each of these again is engaged in a battle among its own troops in its own ranks. The army among whose troops there is less fighting, carries off the victory over the opposing host. Here. (http://www.marxists.org/archive/marx/works/1847/wage-labour/ch04.htm)

However, I am just beginning to look over this area, so perhaps this (http://www.revleft.com/vb/das-kapital-chapter-t42193/index.html?&highlight=chapter) would suit you better.

[Schrödinger's Cat]

I recently got into an argument with a capitalist about the Labor Theory of Value and its validity in modern economics. I told him that obviously labor is the only necessary variable to the value of a commodity, as demand for an object is not a part of the object itself. Marx used the example of linen and a coat to describe relative and equivalent values, so I tried to convince him using the argument that "The linen and the coat are in theory the same thing. The coat is just a form of the linen. Why, therefore, is the 'price' of the coat higher?"

He told me "Because I cannot make a coat out of linen myself. I need a someone to do that for me."

"That is precisely why labor input determines the value of a commodity."
We came to the conclusion that price must then be variable, independent of value.

Is this so? How do we, as Marxists, feel about the law of Supply and Demand? Do we reject it? Do we reconcile it somehow with the Labor Theory of Value?

Supply and demand and the LTV are not foils. LTV determines why an item is more valuable than the materials it's produced from, and the only conceivable answer is labor. Technocrats break it down further into energy.

[gla22]

The Labor Theory of Value isn't supposed to determine price. Price is not the same as value. The LTV explains where the profit (produced when someone pays the price and buys something) actually comes from.

So no, the LTV is not flawed, but yes, it can't define price.

Markets are also flawed. While they determine prices, they set up necessarily exploitative and anarchic relations of production. That is why socialists favor central planning to determine price. Central planning can do the job of a market (determine prices and set production) better than markets can without all of the exploitative relations inherent to a market method of exchange.

yes but LTV establishes an incorrect value of a good or service. It is impossible to destroy markets, even if there is a command economy. The LTV establishes incorrect values for products therefore creating a black market which exploits this. i'd rather have workers owning the means of production working within markets than a command economy which will inevitably lead to exploitation of the situation. Which means people getting goods that are undervalued in the LTV system and trading them for goods and receiving technically more Labor hours than they worked. These people would be like the stock traders of today, making money and contributing nothing to the economy.

I am not saying markets are perfect. intervention in the market is necessary.

[Dros]

yes but LTV establishes an incorrect value of a good or service.

Yes but what?! The point is, the LTV simply explains where the difference between the value of a product and the value of the raw materials comes from and how surplus value is extracted from the workers through exploitation. It's not supposed to set prices.


It is impossible to destroy markets, even if there is a command economy.

No it's not. Why would you make such a claim?


The LTV establishes incorrect values for products therefore creating a black market which exploits this.

THE LTV IS NOT SUPPOSED TO SET VALUES OR PRICES!

The theory describes the basis and origin of exploitation and the connection with generating surplus value.


i'd rather have workers owning the means of production working within markets than a command economy which will inevitably lead to exploitation of the situation. Which means people getting goods that are undervalued in the LTV system and trading them for goods and receiving technically more Labor hours than they worked.

Explain what you mean. I don't think you understand what the LTV is.


I am not saying markets are perfect. intervention in the market is necessary.

I'm saying markets are essentially based in repressive commodity relations which will be abolished, along with the markets themselves.

[gla22]

Under the LTV system people are "paid" in labor hours. If something took 10 labor hours to make 10 hours of your labor is spent purchasing it. Am i right on this?

Not all labor is equal for various reasons. Some people may be more skilled atthe same tax, two products are supposedly the same yet one is inferior and one is superior. Some jobs require the operation of complex tools and machinery or merely normal tools and machinery, this soon complicates the value of the product if the labor required to produce the machine is added into the hourly "price" of the product. Some labor requires years of education, therefore making it more valuable than other labor. But under the LTV system all this labor is treated as equal or is gauged incorrectly. This cause a discrepancy between real value and LTV value. Because of the discrepancy black markets will form to exploit this.
LTV is a good theroy until it is time to actually implement.
It is impossible to get rid of markets, even in a command economy people will trade stuff ect.

[Dros]

Under the LTV system people are "paid" in labor hours. If something took 10 labor hours to make 10 hours of your labor is spent purchasing it. Am i right on this?

No. The LTV is not a system! It does not say how people should be paid! The LTV describes how surplus value is extracted from the proletariat under capitalism.


Not all labor is equal for various reasons. Some people may be more skilled atthe same tax, two products are supposedly the same yet one is inferior and one is superior. Some jobs require the operation of complex tools and machinery or merely normal tools and machinery, this soon complicates the value of the product if the labor required to produce the machine is added into the hourly "price" of the product. Some labor requires years of education, therefore making it more valuable than other labor. But under the LTV system all this labor is treated as equal or is gauged incorrectly. This cause a discrepancy between real value and LTV value.

Yes certain laborers are paid more than others under capitalism. This is because labor is sold on a market governed by supply and demand.


LTV is a good theroy until it is time to actually implement.

THE LABOR THEORY OF VALUE IS DESCRIPTIVE! THERE'S NOTHING TO IMPLEMENT. IT'S ALREADY HAPPENING!


It is impossible to get rid of markets, even in a command economy people will trade stuff ect.

:lol:

People will still trade stuff?! That's why we can't get rid of markets?

[Luís Henrique]

Under the LTV system people are "paid" in labor hours.

No. The LTV seeks to explain how value is created in a capitalist society, not to propose a way to do things.


If something took 10 labor hours to make 10 hours of your labor is spent purchasing it. Am i right on this?

Only if your labour has the same value than the labour of the workers who produced that commodity. But you keep confusing value with price; prices orbitate around value, but they are determined by supply and demand (supply and demand being determined by value).


Not all labor is equal for various reasons. Some people may be more skilled atthe same tax, two products are supposedly the same yet one is inferior and one is superior.

This is easily explained within LTV. Different kinds of labour have different values, and each kind of labour has an average value.


But under the LTV system all this labor is treated as equal or is gauged incorrectly.

No, this is simply wrong.


This cause a discrepancy between real value and LTV value. Because of the discrepancy black markets will form to exploit this.

No. There are always discrepancies between price and value, but this is not the cause of black markets.


LTV is a good theroy until it is time to actually implement.

It is not something to be "implemented". This is like saying that gravity is a good theory until it is implemented.


It is impossible to get rid of markets, even in a command economy people will trade stuff ect.

It is impossible to get rid of markets in a capitalist economy.

Luís Henrique

[gla22]

"American individualist anarchists (http://en.wikipedia.org/wiki/American_individualist_anarchists) based their economics on the LTV, with their particular interpretation of it being called "Cost the limit of price (http://en.wikipedia.org/wiki/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."

This is where I started to have problems, when trade is backed by labor and this is what I was reffering to when talking about possible failures in implementation.

"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."

Marx said this, and I have to disagree with him here. Many things change the "value" not just labor and resource, but also demand, speculation and situation.

It is impossible to get rid of price, price is merely value in relation to other goods.

[Dros]

"American individualist anarchists (http://en.wikipedia.org/wiki/American_individualist_anarchists) based their economics on the LTV, with their particular interpretation of it being called "Cost the limit of price (http://en.wikipedia.org/wiki/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."

1.) These aren't Marxists.
2.) This is (one reason) why no one cares about individualist anarchists.
3.) This is simply them not understanding the LTV.

This is where I started to have problems, when trade is backed by labor and this is what I was reffering to when talking about possible failures in implementation.


"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."

Marx said this, and I have to disagree with him here. Many things change the "value" not just labor and resource, but also demand, speculation and situation.

Where does that fact contradict Marx?


It is impossible to get rid of price, price is merely value in relation to other goods.

It is in Communism when you stop exchanging things as commodities.

[gla22]

Please explain how you interpretation of a Marxist economy would work then.

[Schrödinger's Cat]

Please explain how you interpretation of a Marxist economy would work then.

You're complicating things too much.

The formula is simple: you have the materials for shoes. What gives these materials less cost - less demand - than a finished pair of shoes? Labor.

[Dros]

Please explain how you interpretation of a Marxist economy would work then.

Collective ownership of the means of production combined with central planning and surplus production leads to a "gift economy".

[Schrödinger's Cat]

Marginalists construct a straw man whenever they attack Marx's interpretation of LTV. For instance, the wikipedia article states that Marx believed only labor contributed to value, when he said no such thing.

[Luís Henrique]

Please explain how you interpretation of a Marxist economy would work then.

Labour Theory of Value is not an interpretation of a Marxist economy.

It is a Marxist analysis of capitalist economy.

Luís Henrique

[Lamanov]

LTV is a good theroy until it is time to actually implement.

I think you have a gross missunderstanding of what "theory" really means.

LTV is not designed to be "imlemented", but to theoretically transcend existing capitalist relations, and remove them, in practice.

I'm reading your posts and I have to say that you're missing the point and that you're mixing the term value with others such as use value, exchange value, price, etc.

At least read the first chapter of Capital.

[Lamanov]

Marginalists construct a straw man whenever they attack Marx's interpretation of LTV. For instance, the wikipedia article states that Marx believed only labor contributed to value, when he said no such thing.

Eh, he did.

He said that labor is not the only source of wealth. But value, on the other hand, is actually objectified labor, i.e. labor that turns itself into value. Labor, productive activity, thus, is the only creator of value.

[gla22]

"A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another." -Marx

How are these supposed to be gotten rid of?

"We have seen that when commodities are exchanged, their exchange value manifests itself as something totally independent of their use value." -Marx

i would disagree with this, In many cases exchange value is related to use value, not with currency but in other cases yes. Is it really possible to separate exchange value and use value, the use value of currency is the ability to exchange it for other items.

can someone explain to me how a Marxist economy would function then. How items would be obtained, how production would be controlled ect.

[Kwisatz Haderach]

Under the LTV system people are "paid" in labor hours. If something took 10 labor hours to make 10 hours of your labor is spent purchasing it. Am i right on this?
No. You are thinking of the labour accounting system that is one of the proposed ways to determine prices and worker compensation in a socialist or communist economy. The labour accounting system is based on the LTV, but the LTV does not require you to support it. Indeed, the LTV by itself does not require you to support anything - it is merely a description of how value is determined in an economic system.

Other comrades in this topic have done a good job of explaining the LTV.


can someone explain to me how a Marxist economy would function then. How items would be obtained, how production would be controlled ect.
Well, that is pretty much the same question I answered here (http://www.revleft.com/vb/currency-necessary-t78743/index.html?p=1147445#post1147445), although the discussion went off-topic afterwards... The three main ways to organize a socialist or communist economy are based around labour accounting, energy accounting and gift economics respectively. Here's a copy of the relevant part of my post for those who haven't read that topic:

Leftists don't want a barter economy because barter implies markets, and we want to get rid of markets altogether.

So how do we plan to get rid of money? Well, you have to consider the functions of money in a market economy and how the same functions could be achieved without it. Money serves to guide both production and distribution of goods and services; it gives information about supply and demand to producers, allowing them to make production decisions, and it helps determine which consumers get what. To eliminate money we need to find a different way of (a) gathering information to guide production decisions, and (b) distributing goods and services among consumers.

There are many ways of doing both of those things without money. Gathering information about our supply of natural resources and capacity to produce things is pretty straightforward; instead of measuring costs in money we could easily measure them in labour-time (so many workers with such given skills must work for so many hours in order to produce such object - that's the kind of thing all corporations already know). Gathering information about consumer demand is a bit trickier, but there are many different ways to do it. We could have polls and surveys to ask people what they want; we could have people voting online (the internet makes a moneyless economy much easier); we could have a place in each store where customers can give their input; or a combination of the above. Then we need a coordinating body to match production with demand. This could be a state if you're going for state socialism, or a gathering of workers' councils if you want something more decentralized, or we could even leave it up to public opinion (publish the information about demand and rely on social pressure to make the producers produce what is demanded - not my favourite idea, but it could work).

As far as the other role of money is concerned, creating a distribution of wealth - here we can say with nearly absolute certainty that we could easily do better in a moneyless economy. There are many ways to distribute goods and services without money, and all of them would create a better society. We could do it with labour accounting: Have a certificate or debit card-type object that records how much time a person has worked, and allows that person to buy goods and services that took an equal amount of time for other people to produce. If you worked 40 hours you can buy any combination of things that took a total of 40 hours to produce. We could do it with energy accounting: Much like the above, but measuring total energy input rather than labour time (total energy input = calories burned by human workers involved in production + energy used by machines involved in production). We could go for an egalitarian or needs-based distribution: Don't worry about accounting and just give every person a more-or-less equal share of something, adjustable up or down if they demonstrate more need than average. This can work for goods that are available in abundance and are unlikely to be over-demanded if they are given out for free - stuff like pencils, toothbrushes, and other mundane items. Very few people will take more of these than they need.

I think we ended that discussion talking about whether labour accounting could adequately take all costs into consideration. We can continue here, if you want.

[gla22]

ok alot has been cleared up for me here about the LTV. I guess i was arguing against labour accounting (which is based on LTV) taking all costs into consideration rather than LTV itself. Thanks for your patience.

[mikelepore]

How do we, as Marxists, feel about the law of Supply and Demand? Do we reject it? Do we reconcile it somehow with the Labor Theory of Value?

According to Marxian economics, supply and demand determine the price of a commodity, but they don't determine the price in reference to "no particular" reference point. Supply and demand determine the price in reference to the value as a starting point, with the price as a departure from it. The socially necessary labor time determines the value, and supply and demand determine how much of a positive or negative offset from the value will be found in the price. Supply and demand can make the price oscillate; the value is the level about which the price oscillates.