Labour Theory of Value

[Matty_UK]

OK I'm having trouble getting my head around this.
This is what I've figured out;

As something that is purchased, labour is a commodity and has an exchange value. The exchange value of your labour is what determines your wages. However, labour also has a use value. This is created by the work you do for your boss and it produces a surplus value of your exchange value. This surplus value is appropriated by your boss and is how profit is created. Therefore only capital spent on labour can create new capital; constant capital spent on improving productivity does not create surplus value, only more commodities.

BUT after this I have no idea how value influences price, or even how labour determines the value of a commodity.

Could someone PLEASE explain this to me? In easy to understand examples?
I feel a bit embarrassed that I don't understand this.....

[JazzRemington]

Value acts as a "magnet" for prices: prices tend to be within about one-fourth of a percent of whatever the value of the commodity is. There's a paper that ComradeRed posts all the time that shows the empirical strength of LTV. I'm sure he'll post it if he sees this thread.

Labor determines the value of a commodity by simply being expended upon it. In general, the more labor in a commodity the more value it has (thus the more expensive it is). What determines a commodity's exchange value isn't individual labor, but socially necessary labor, which is that labor performed using average skill and technological level. On a side note, this is the materialist explanation for "market prices."

Let's take this as an example: it takes person A 5 hours to make 1 shoe with whatever technology and skill available to him. It takes person B 8 hours and person C 10 hours. People will probably buy person A's shoe because it is cheaper, thus person B and C will have to find some way of producing shoes more effectively in order to compete with person A. As a result, the market price for shoes goes down to about 5 hours. Granted this is a overly simple example, but I think it gets the point across well enough.

[Matty_UK]

Originally posted by JazzRemington@March 26, 2007 02:05 pm
Value acts as a "magnet" for prices: prices tend to be within about one-fourth of a percent of whatever the value of the commodity is. There's a paper that ComradeRed posts all the time that shows the empirical strength of LTV. I'm sure he'll post it if he sees this thread.

Labor determines the value of a commodity by simply being expended upon it. In general, the more labor in a commodity the more value it has (thus the more expensive it is). What determines a commodity's exchange value isn't individual labor, but socially necessary labor, which is that labor performed using average skill and technological level. On a side note, this is the materialist explanation for "market prices."

Let's take this as an example: it takes person A 5 hours to make 1 shoe with whatever technology and skill available to him. It takes person B 8 hours and person C 10 hours. People will probably buy person A's shoe because it is cheaper, thus person B and C will have to find some way of producing shoes more effectively in order to compete with person A. As a result, the market price for shoes goes down to about 5 hours. Granted this is a overly simple example, but I think it gets the point across well enough.

OK, tell me if I understand correctly;
The cost of labour, basically defined by how much labour time is put into it, effectively sets the minimum price of a commodity? And as competition generally drives prices down the final price determined by capitalist competition will ultimately be determined by the labour put into it. So supply and demand plays a role but ultimately it is governed by labour.

So is value defined as the true price determined by labour, although supply and demand can cause deviations from the value? But that must be wrong if the price is 1/4 of the value. What is value? And why is price 1/4 of it? Unless you mean value is 1/4 of the price, but even so, why 1/4?

[JazzRemington]

The cost of labor (or the value of labor itself) is the bare minimum necessary to keep the worker coming back to work. For example, if he needs at least $100 a week to live, then the value of his labor is $100 weekly, or whatever that translates to hourly, daily, monthly, etc.

This is the monetary value. Hourly value (which is what value is usually measured in) is figured the same way. For example, if it takes a worker 20 hours weekly to create the value necessary to secure his sustenance, then his value would be 20 hours weekly, or whatever that translate to hourly, daily, monthly, etc.

The value of labor is just a part of what can be considered the "minimum price of a commodity." The total value of a commodity can be figured with C+V+S, where C is constant capital (the machines, tools, and materials necessary for the production of the commodity), V is variable capital (the cost of the physical labor), and S is the surplus value (value that workers create above the cost of their labor).

The "final price" is always C+V+S. Competition will drive down prices (by increasing productivity, sot hat less labor is expended upon goods to produce them) but not below where surplus value cannot be made. Remember, without surplus value a capitalist cannot stay in business. The longer there is no surplus value, the shorter the life of the capitalist's business.

Supply and demand doesn't really do much, if anything at all. It does not play as big a role in determining prices as people think it does. As I've said before, market prices rarely deviate from the costs of production. Of course there is annecdotal evidence to support that people lower prices to sell more, but as an aggregate whole supply and demand doesn't determine prices.

The capitalist himself can "adjust" the prices of the commodity he creates by "adjusting" the variable and constant capital, in the form of lowering wages, laying people off, not buying more machinery, or even increasing or decreasing the working day. But all this is to increase surplus value, which can increase prices.

I'm not sure this answers your question, but if you are really lost I recommend coming into Livechat, as there are people there a lot that can answer your questions better than I can.

[ComradeRed]

Originally posted by JazzRemington+March 26, 2007 06:05 am--> (JazzRemington @ March 26, 2007 06:05 am)Value acts as a "magnet" for prices: prices tend to be within about one-fourth of a percent of whatever the value of the commodity is. There's a paper that ComradeRed posts all the time that shows the empirical strength of LTV. I'm sure he'll post it if he sees this thread.[/b]

Right, the funny thing is that bourgeois economists reject this as "too inaccurate" whilst ignoring the fact that if anyone follows bourgeois economic theory in the market, it's so negligible in numbers that it's a statistical anamoly.

Here's the paper too: paper.

MattyUK

The cost of labour, basically defined by how much labour time is put into it, effectively sets the minimum price of a commodity?

The cost of labor? Well, be careful with the wording here because labor means workers and labor-power means the work itself.

So capitalists would buy labor-power which is effectively the same as renting the labor.

The cost of the labor power is determined by the cost it takes for labor to reproduce.

And as competition generally drives prices down the final price determined by capitalist competition will ultimately be determined by the labour put into it.

Uh...what? The competition drives down prices, the final price is determined by capitalist competition, (the final price?) will ultimately be determined by the labor put into it; is that what you're saying?

Well, the first premise is incorrect ("Competition drives down prices"). Innovation is what drives prices down, or else totally improves the quality of the good which would increase revenue.

To be more precise, it is an increase in productivity that gives a capitalist more "bang" for his buck as far as variable capital is concerned; but innovation gives the capitalist more "bang" for his buck as far as constant capital is concerned.

So supply and demand plays a role but ultimately it is governed by labour.

If you want to think for heuristic purposes alone in terms of "supply and demand" that's kind of acceptable...though people like me would object to it.

So is value defined as the true price determined by labour, although supply and demand can cause deviations from the value?

No, Value is the "exchangeability" of a given quantity of a given good. It is defined only relative to other goods at a given time, it is a dynamic variable.

It's not like we could say "x good A has a value of Z". Z? Z what? goats? tonnes of gold? humans? What?!

We have to instead state "x good A has a value equivalent to y good B". Or we could use the money-form, or "price" form, using a "money-commodity" which is a standard of exchange.

We then say "x good A has a value equivalent to z units of the money-commodity". That is what the price is.

How we determine what x is, well, it's by determining the labor inputs and the dated labor inputs to A. It's late and I'd go on, but I'm tired and I have a grad course in the morning

But that must be wrong if the price is 1/4 of the value. What is value? And why is price 1/4 of it? Unless you mean value is 1/4 of the price, but even so, why 1/4?

No, the paper shows the strength of the LTV to within an error of 0.0025 which is negligible and chalked up to statistical error.