The Labour Theory of Value

Let’s say that the cost required to make a pizza is normally $5. How much should we expect the pizza to sell for? The seller would have to sell for $5 or more to meet their costs, otherwise what was the point of making and selling the pizza? On the other hand, if someone buys the pizza for more, say $6, they are paying $5 for the pizza and $1 for… what? For the privilege of buying a pizza from that particular pizza place? They should look around for a better price.
And what determines the cost of a pizza, anyway? It would include the ingredients, the machinery used, the preparation and cooking. But the ultimate cost is the labour required to source the ingredients, make the machinery and of course the human labour used to turn these into the final product. Labour is the original expense, the natural world is a “free gift” to humanity. Nobody created nature, so it didn’t cost anyone anything.
This is the basic idea behind the Labour Theory of Value (LTV), a central aspect of Marxism. Labour is the cost of commodities, and paying more or less than that cost amounts to someone, either the buyer or the seller, giving away free labour. It’s a simple and elegant theory that can help to understand how our economy works, and also why it doesn’t.
A counter-argument to this theory is that labour can be used to produce things, such as mud pies, which have no value. But there are two different kinds of value of commodities: the use value (Is it useful to you?) and the exchange value (How much is it worth?). The amount of labour that goes into a mud pie doesn’t tell you whether or not you want to buy it, just what you should pay for it if you want it.
Another important point is that the exchange value of a commodity isn’t the actual amount of labour that is used to produce it, but the “socially necessary” amount, or the amount that is normally required. If someone can produce the commodity more efficiently and with less labour, they will have an advantage over other producers, bringing the average price down.
The LTV leads us to ask an interesting question: what is the exchange value of labour? In capitalism labour is a commodity: employees sell their labour, and employers buy it. That labour has a cost: the food, shelter and healthcare we need to be able to work. But labour can produce more than it costs. We can earn as much as we need and then some. This is because technology, as well as training and organisational methods, make our labour more productive.
This productivity, the difference between the value of our labour and the value of what our labour produces, makes capitalist exploitation possible. The employer pays our wages, and the other costs of business, expecting to make as much back and then some. There would be no point in going through the process of running a business if it didn’t yield a return. That return is a surplus which comes from the commodities our labour produces. The commodities, and as a result the profits, come from our labour.
Because our employers rob us in order to make profit, we can’t buy back what we produce. This is a problem, because the employers as a class sell the commodities the working class produce back to us. But when they can’t sell it all, they cut back on production and buy less labour. Buying less labour means we have even less money to buy our stuff back. This is a vicious cycle leading to less employment and underproduction, an economic downturn. These downturns happen every few years, and as our labour is further devalued by technology, become harsher and more frequent. The greater the exploitation, the bigger the boom, the harder the crash. Thus is the nature of capitalism, and it will be until we transition to the next form of production.
Summary:
- The cost of commodities is the socially necessary labour they require, which determines their exchange value
- The use-value of commodities is different from the exchange-value
- The socially necessary labour commodities require is different from the actual labour used
- The value of labour is different from the value of commodities produced by labour, because of increases in labour productivity
- The profits of employers come from the surplus that labour produces
- The exploitation of labour leads to a cyclical crisis of overproduction leading to a crash
- Technology continues to devalue labour, leading to greater exploitation and crises
