As reading for prelims and a research assistant gig have picked up their speed, I’ve been posting quite a bit less often. Sorry about that. This week I’m going to try and make a few shorter entries and maybe a long one somewhere along the way. For right now though I just want to offer a silly thought: I really miss the labor theory of value.

Let me explain a bit. Political economists from Adam Smith through Karl Marx subscribed to something called the Labor Theory of Value. The handy Economist dictionary defines that theory as: “The notion that the value of any good or service depends on how much labour it uses up. First suggested by Adam Smith, it took a central place in the philosophy of Karl Marx. Some neo-classical economists disagreed with this theory, arguing that the price of something was independent of how much labour went into producing it and was instead determined solely by supply and demand.” There are some serious problems with the Labor Theory of Value (LTV) as a theory of price – as far as I know, it basically doesn’t work for a lot or most commodities. The problem is scarcity – if there are only a handful of diamonds on the planet, it does not matter how easy or hard they are to extract, their price will be almost independent of that cost (unless of course people are unwilling to pay at least enough to extract them).

Late 19th century Marginalists – and all of mainstream economics since then – have moved completely away from the LTV and embraced the laws of supply and demand. For modern economics, demand and supply are separate functions and where they meet determines price and quantity produced. It’s a neat (as in tidy) system. It’s also, on some level, absurdly post-modern. Things are worth what they are worth because they worth that much. Price is the ultimate social construct, real because of its construction, but capable of being almost anything. It’s turtles all the way down!*

For the Smith, Ricardo or Marx, on the other hand, things had value, not just price. I only know the details in Marx’s case, but for Marx at least the value of a thing is how much labor is needed (on average, given the state of technology and social relations) to produce a thing. This definition makes a lot of sense when you think about factory goods, for example. You can imagine the central planners in WWII (many of them trained economists, playing a major role in policy for the first time) implicitly working with this concept of value – two tanks is one fighter is 1,000 rifles, etc. The equivalences here are no longer about price, but about value. How much steel goes into each and how much labor does it take to make that steel? How many hours of riveting and welding and etc. does each need to be assembled? And so on. Those are questions about value. Of course, the use values (in Marx’s terms) might be different – a fighter might be worth a lot more than two tanks given the state of the war – but that’s fine, it just means you make a lot more fighters than tanks.

Anyway, I got to this line of thought after a conversation with a grad student friend of mine with a much stronger background in Economics were discussing introductory theory sequences. In the sequence he took, the first course started off with enlightenment political thought, and then continued on to the political cannon. We were discussing the idea of throwing in a bit of Smith or Ricardo before Marx to prepare you for Marx’s take on the LTV. To a student of modern economics, the LTV can just seem crazy, and Marx seems crazy along with it. But it’s not Marx’s Labor Theory of Value, it’s Smith’s and Ricardo’s and everybody who’s anybody back then. You could read a bit of Smith, then a big chunk of Marx, and then a smidgen of the Marginalists to track the change to modern economics. Then you could compare the concepts of value to the concept of price, and see that, for example, value is a really poor proxy for price, but price is sort of a terrible measure of societal worth or progress. Consider all the problems with the national income statistics – GDP or GNP – which simply measure the total price of all exchanges made. But they don’t really measure value, or anything that makes sense to call that. It seems like a neat idea, and it might give sociology grad students a bit more comfort and understanding of the place of modern economics (instead of the jealousy and ignorance so often ascribed to us). Of course, you’d also have to add another couple weeks to the term to fit it all…

Oh and the title refers to the annoying habit of critics of Marxism to refer to Marx’s Labor Theory of Value as some backwater economic theory. Sorry folks, it’s not Marx’s Labor Theory of Value, ok?

* Ok, I know that’s not quite the proper use of the expression, but I love the expression and I’m trying to get it into common usage and I’m willing to except a little slippage in the meaning to get there. So, yeah.