The Labor Theory of Value Doesn't Work

You wouldn't work either, if you were the Labor Theory of Value.

Just as the Libertarians have their myth that a "free market" will determine the true value of things, the Marxists have the myth of a Labor Theory of Value. Both fail because of a lack of scientific thinking (see also, Richard Carrier talking about how difficult, but possible, it is to scientifically determine true values).

But the Labor Theory of Value (LTV for short) vanishes when you look for it.

According to wikipedia, the starting point for Marx's argument was as such: "What is the common social substance of all commodities? It is labor." And yet "economic demand", "supply", exchange, and a "value chain" are also required for all commodities. Even more so: it requires no significant labor to randomly find a rare valuable stone, created entirely by nature. But it always takes demand to sell it.

That should be the end of that. But ever-increasing "epicycles" are needed to make the LTV fit the facts. Because people who struggle with scientific thinking do that sort of thing.

You will never find the value in the labor
A labor theory of value should be able to tell us what the value of something is just by looking at the labor required. But this will never work, because we can always ask "why does anyone value that labor"?

Does muscle power determine value?
Heavy lifting? Sometimes it's valuable, like when building a house. Other times, it's useless: when lifting a rock just for fun. Small movements of the hand? Highly valuable when it produces great art, or performs surgery. Useless without such a context, just exercising your finger muscles. What about sitting still? Just thinking? Good ideas can be very valuable. We'll miss you, Stephen Hawking. Then again, bad ideas, or no ideas at all, are not as valuable. Thus we can't tell by looking at the labor (especially not the "amount" of labor), we have to look at the context (see my discussion of results caused by the individual plus the context)

The non-scientific thinkers, as they do, are quick to invent an excuse: the labor has to be "economically necessary". But this concedes the point: the value is not found in the labor, it is found in the "economic necessity", which is just a fancy term for "economic demand".

Does skill determine value?
A lot of the above examples of valuable labor involve skill. So we might be tempted to make this into a "skill theory of value". Then, house builders are paid by skill, surgeons are paid by skill, and the owners are paid by skill of managing their assets. Right?

Not so fast.

Skill suffers from many of the same problems. You can train yourself to be highly skilled at something...only to find that no one cares, no one will pay you to do it (though I suspect a few misguided souls in the art world will always have your back, perhaps for ideological reasons). For example, think of the surgeon. Would anyone pay the same salary for that surgeon to use that skill on nothing but cutting fake rubber heart models all day every day? No. Once again, it's the context. The demand, and the value chain.

Does time determine value?
Apparently, lots of Marxists, possibly even Marx himself, considered time to be a crucial factor. So much so, that maybe the whole theory should have been called the "Work Hours Theory of Value". That's certainly what I will call any such theory, from now on.

This still begs the question:  why are some uses of time valuable, and others are not? Oh, right, demand. Again.

The context and the demand for labor
In what context is labor/skill/time valuable? When it is in the context of a value chain. What makes this chain of labor valuable? Demand for its results. Who produced the chain? The people organizing it.

Ownership is labor
One thing a Marxist cannot have, is for a "capitalist" (read: owner) to deserve any pay whatsoever.

And yet ownership is labor. How? Because decision making is labor, and ownership is decision making.

You could ask "how much labor is it though"? But as we saw above, there is no way to look at labor to determine it's "amount" of value. It doesn't matter if the labor itself appears to be hard work or not. We have to look instead for the demand. Or, how valuable the contribution is to the result.

Isn't this all a misunderstanding?
People claim that these kinds of interpretations are a misunderstanding. See here and here.

And yet, it seems, the whole point is to use this theory to prove things like surplus value and then exploitation of labor (see my discussion of surplus value in the section below). And that means, paying people less than what they contribute. Which means, you need some way to determine how much people contribute before you can say whether a wage is more or less than that amount. But it seems Marxists get this all backwards. They start with an assumption about what the labor is worth: it's worth all of the added value of the product. And the owner contributes zero (zero added value, obviously Marxists admit that capitalists contribute capital, but to get the equation to work in an anti-capitalist argument they have to deny that the capitalist has added anything to deserve more payment than the value of the used-up materials and worker payroll and such).

But that would be circular reasoning, begging the question. Does the owner really contribute zero? Is all the added value only due to the workers? You can't give the LTV as an answer to these questions if it merely assumes the answer.

It may yet turn out that the true interpretation has nothing to do with fairness, or what people should be payed. But I can't tell what else could be the point.

Surplus Value
From the discussion of surplus value by Richard Wolff at this link (which practically confesses much of what I suspect):

"capitalists get money, profits, [...] The whole point says Marx is to understand that they [...] didn’t contribute crap, zilch, nothing"

This is ludicrous.

Here I'll show how Richard merely mentions the sane objections to his theory, and then never disproves them, only asserts that the contrary is true. His fallacies don't mean capitalism is A-ok, but they can't logically be used to demonstrate flaws in capitalism. And they add to the suspicion that Marxism, at least, is fallacious at the core:

"Marx’s argument at this point is absolutely crucial."

Crucial, yes, but is there an argument for the point under dispute? Or just assumption of the point under dispute?

"Marx’s analysis goes something like this. The workers add more value during the time they work than the employer pays them for working."

That isn't an analysis. That's the point under dispute.

Surrounding this quote are things that are supposed to imply the reasoning behind the conclusion. But (as perhaps needs to be the case) the argument isn't actually spelled out from premises to conclusion, because I don't think there can be any logical link between them.

He seems to imply that the following statements (and the many variations of them he uses) are basically equivalent: Intuitively, these sure might seem to be equivalent.
 * "If the employer has $100, and uses $20 to buy raw materials, $20 for the tools and equipment, and then $60 to pay the wages to the worker. So, 20-20-60, that’s the employer’s $100. The capitalist is only doing this, because the end product, which belongs to him/her as employer, can be sold for more money than $100."
 * "the only reason the employer is going to give you $20 for every hour you work is if that hour produces more than $20 worth of stuff for him/her to sell. Because if it didn’t, there’d be nothing in it for the capitalist" [he erroneously leaves out the cost of materials here, but the argument is similar to the above point]
 * "Workers are exploited! Why? Because they produce more by their labor than they get."

But let's look at a part like this:

"that hour produces more than $20 worth of stuff for [the employer] to sell"

Now ask: whatever the stuff produced is worth, should ALL of that money go to the employee? He didn't present an argument for it, and point #3 above is actually a re-statement of the conclusion

Well, you might point out that Richard forgot to include the cost of the materials and tools. So that's a fail (surely not a deliberate sleight of hand?). But I think he intends to argue that it's the same problem even if you include the cost of materials and tools.

"There’s got to be more than the capitalist gets from you, the worker, than he/she gives you because there’s no other rationale in Marx’s view to account for why this is done."

Getting more money seems to be a fine rationale. The assumption/"conclusion" that this "more money" was unearned has not been demonstrated.

Here Wolff mentions risk, which most people would think is one of the main reasons that the capitalist earned their pay:

"If that isn’t the case, then the capitalist has no incentive to commit his/her wealth, money, 100 bucks, to the production process. The capitalist would be better off not taking the risks, because there are always risks in production, holding on to the money or lending to somebody at interest. He/she wouldn’t put it into production, unless he/she got more at the end, what is typically called by Marx “surplus”"

But Wolff proceeds as if this is supporting his argument, somehow.

He also outlines even more that most people would agree the employer contributes:

"the employer brings his/her contribution, variously described as entrepreneurship or managerial talent or some similar characteristic."

Aside from some more question-begging, his argument against this is the following:

"the people making the decisions, typically the board of directors, so 15 or 20 people sitting at the top of a corporation who have absolutely nothing to do with production [...]. These people have never been on the assembly line, they’ve been in the office, they’ve never been in the store, they don’t know the details and they aren’t expected to. They sit at the top and they gather into their hands all the profits and decide what to do with them, but their connection to production is so remote that it would be hard to explain, exonerate, or excuse their contributions. Not to mention there are 100,000 workers in a corporation and 15 individuals making all the decisions."

This is about the only argument we get down to. This is so surreal that I think any attempt to put it into my own words will be inaccurate. He seems to imagines that, somehow, this board of directors is doing nothing of consequence. I guess all these paragraphs about paying $20 for this or that are more appealing to Wolff than just coming out and saying "secretly the people at the top sit around and do nothing something hard to explain all day". I don't think this is that far off from conspiracy theorists who imply that entire fields of science [among other things] are lying about the work they do. It's easy for an ignorant mind to imagine anything they like outside their direct, limited experience. I think I simply have to encourage anyone who believes this conspiracy theory to spend some time learning the details of what "top" positions of a company do. But we all know how that goes.

Value
People value things. They want or desire this or that. They can value products, services, contexts, themselves, other people, all kinds of "things".

People can even value good jobs.

This would seem to mean that people would give up some money in exchange for a better job.

And they would demand more money to convince them to do a job they don't want to do. Like cleaning toilets or something.

Never mind that nearly everyone has the skill to clean toilets. Never mind that it isn't "as much" labor as playing hockey.

If people don't want to do something, that's value that has to be paid for.

True Value
Lastly, it is not enough for someone to want something (and be willing to pay it's dollar price) at the moment. They may buy it, and get everything they hoped for, only to find that they aren't satisfied. There is a difference between descriptive economics, and prescriptive. Even the market solution to the economic calculation problem is merely descriptive. The market tells you what people do choose to buy, and for how much. It doesn't tell you what they should choose to buy, and/or for how much.

You can be mistaken about the facts (like what the problem is, what can actually fix it). Scams are an obvious example (to this, Libertarians say "oh well, people should be free to make stupid decisions", which is a prescriptive claim I'll have to examine in another page). Maybe a product or service has side effects, like pollution, and then you have to pay to fix these side effects too. So you have to pay more than you realized. Or maybe no one would ever have bought a car if trains and bicycles had less overall cost in terms of not only deaths, but also complex effects on society we can hardly imagine.

You can also be mistaken about your own true values:  what would you really do with those dollars if you were informed of all the facts and reasoning without fallacy?

Some fixes have been invented to help with this. There are 30 day money back guarantees. There are reviews, like on the Amazon website. And, of course, we can use the legal system to sue people.

For the scientific discovery of true values, see Richard Carrier's writings on the subject, for example here.