The Labour Theory of Value Made (Massively) Easy

As readers of my blog probably know, lately I’ve been trying to produce a series of articles aimed at presenting basic Marxist ideas in a really simple, easy to read format. I’ve now decided to go one step further, and turn these into short videos. This new video series, Marxism Made (Massively) Easy, is intended for total newcomers to Marxism. Indeed, in recent years there’s been a massive growth of public interest in Marxism, though as always, there’s so many misconceptions out there.

So, here it is, the first episode of Marxism Made (Massively) Easy. In this initial episode, I’m going to talk a bit about one of Marx’s most fundamental ideas: the Labour Theory of Value (LTV). It might sound a tad dry, but LTV was a big deal for Marx. Why? Well, watch the video and find out!

//SCRIPT//

Hi everyone, and welcome to the first episode of Marxism made Massively easy. In this series, we’re going to talk about one of history’s most controversial theories of politics, economics and society: Marxism. In the modern western world, just saying the word Marxism can make people’s skin crawl, and hair stand on end. I mean, what’s the first thing you think of when you hear “Marxism?” Maybe you think of the Soviet Union, Stalin, breadlines, secret police, the Cold War, perhaps? All of these things are indeed a part of Marxism’s history, and are worth discussing. But, there is so much more to Marxism than these negative stereotypes. Because like it or not, the modern world has been shaped by Marxism and Karl Marx. There are very few writers in history whose works have become so popular, so quickly, in so many places – than Karl Marx. And if we focus on just the bad side of Marxism then we deprive ourselves of the opportunity to really explore one of the most influential, persistent and I believe valuable sets of ideas to ever be conceived.

Now, obviously Marxism is an absolutely massive subject, and it’s not so easy to know where to start. After a bit of soul searching, I’ve decided to begin this series with what I feel is the most important theory for understanding the basics Marxism: the Labour Theory of Value. This theory is controversial even among Marxists. Some people think it’s the basis of all Marxist theory, while others argue its totally outdated and just plain wrong. Either way, you cannot understand Marx without first understanding the Labour Theory of Value.

So, in this episode, I’m going to explain what the Labour Theory of Value is, and why it was important for Marx. In a later video, I’ll discuss some of the common criticisms of the theory. So without further a due, let’s ask: what is this theory?

According to Marx, “A commodity has a value because it is a crystallisation of social labour. The greatness of its value, or its relative value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labour necessary for its production.”

–Karl Marx, Value, Price and Profit (1865)

So, what the hell does that mean? Well, let’s unpack it piece by piece. First of all, most people work for a living. When you work, you create stuff – maybe physical products or commodities, or maybe services of some kind. Either way, Marx believed your work has some kind of value. For example, let’s say you start out your day with some wool, which you purchased for $1. Over the course of the day, you work on that wool, and turn it into a nice pair of woollen winter socks. At the end of the day, you then sell the socks for like $5 or something. How did you do that? How did you take a piece of wool worth $1, and sell it for $5? Where did that extra $4 come from? To Marx, the answer was simple: it came from you! Or, your labour, to be specific. By making a pair of socks, you physically transferred the value of your labour into the wool itself, thus increasing its value. So, to Marx, the new value of the socks is equal to the value of the raw material used in their production – the wool – aaaand the value of the labour you put into them. So, in a way, the end result, the socks, are actually a crystallisation, or physical manifestation, of your labour power. The socks literally represent your contribution to society, and this is reflected in their value.

So, let’s move on and ask, why is the Labour Theory of Value, LTV, so important for Marxism? Well, the first thing it does is distinguish Marxism from market centric economic theories. For example, most modern, liberal economists reject LTV. Instead, they argue that labour doesn’t necessarily affect the price of a product. Rather, they argue the price of a product or service is, well, whatever anyone is willing to pay for it. So, if you’re willing to pay $5 for a Starbucks Unicorn Frappuccino, then that’s how much it’s worth. But, if everybody refuses to buy the Frappuccino because they think its too expensive, then the price might go lower. The opposite is true if Starbucks is selling out. The point is that for liberal economists, everything is a question of supply and demand. Now liberal economists love this supply/demand approach for two big reasons: first, it obviously makes a ton of sense. Secondly, it does something very important: it establishes the notion that the marketplace is the centre of society. After all, if value is determined at the point of sale, and the point of sale is the marketplace, and all human interactions are about exchanging values, then heck, the marketplace is basically the centre of our civilisation and our lives. In this theory, everything revolves around the marketplace.

Now, contrary to popular belief, Marx didn’t reject the laws of supply and demand. In fact, he didn’t even disagree that the marketplace plays an important role in the determining of prices. But, he felt there was more to the story. He believed that market forces were just the tip of the iceberg, or like ripples on the surface of the water. But beneath, he felt there were deeper laws that determined how the economy works. And a big part of that was the Labour Theory of Value.

So, why? Why was Marx so obsessed with this idea that the market wasn’t the be-all and end all? Well, the simple explanation is that Marx wanted to create a theory that would accurately reflect the real life experiences of ordinary people. He wanted something that the average factory worker could relate to, understand, and use in their daily life. Even in today’s world, ask yourself, where do you spend most of your life? Do you spend most of your waking hours in the marketplace, for example, the mall or the shopping centre? Or, does your life revolve primarily around your workplace? Now, for some people that might be a tough question to answer, especially if you’re a shopaholic or something. But, for most people, life primarily revolves around work. You do it eight hours a day, maybe more – so it kinda defines your life. So, if Marxism is supposed to be a theory for the average Joe, then it should reflect this reality that work is at the core of who we are, and how we experience the economy. This is why the Labour Theory of Value was so important for Marx. Because it situated the workplace at the centre of all social interactions. To Marx, your work determines who you are, your place in society, how you act, how you think, and ultimately, how you contribute to the wider world. In other words, to Marx, primarily value stems from the workplace, not the marketplace.

So, how well does the Labour Theory of Value stand up to scrutiny? Find out, in the next exciting episode of Marxism Made (Massively) Easy!

First published at Dissent Sans Frontieres.