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Labor Theory of Value

Karl Marx subscribed to the labor theory of value. The labor theory of value was initially introduced by the classical economists Adam Smith and David Ricardo, but was furthered developed in Marx’s work Capital. In this theory, value is determined by the amount of labor, measured by the time, in a certain good.

In this theory, the value of commodities is divided into two categories: use-value and exchange-value. Use-value is the usefulness of the thing. It is intrinsic to the good. Exchange-value, in contrast, is the proportion by which use-values of one kind are exchanged for use-values of other kinds. The exchange-value is a relational number. However, since the exchange-values are not arbitrary, there must be a common unit by which the goods can be equated. In order for goods to be equated, their unique characteristics need to be stripped away or abstracted. When the unique use-values of the goods are removed, the only value left is the labor time put into the good.

Abstract Labor

Marx’s theory of value differs from the classical view in his definition of labor. Marx separates it into two different types: concrete and abstract labor. Concrete labor can be thought of as the unique characteristics of labor such as the work of a farmer versus a tailor. Abstract labor, on the other hand, is the general conceptualization of human labor. It represents the expenditure of simple human labor power. Concrete labor produces qualitatively different commodities; however, in order to equalize and compare the values of qualitatively different commodities quantitatively, their value must be measured in terms of abstract labor. Abstract labor is the basic unit of value and is basis for Marx’s labor theory of value.

Surplus Value

According to Marx, in capitalism, workers own their labor-power, but do not own the means of production through which they can actualize their labor power and generate use-values. As a result, the workers must sell their labor and are alienated from it. The capitalist takes the use-values created by the workers. However, the capitalist does not want these goods for their use-values, rather, he or she wants them for their exchange-values. According to Marx, capitalists desire profit or surplus-value. However, no surplus value can be created naturally. The labor process simply transforms value from one form into another. Thus, according to Marx, the only way for the capitalist to gain surplus-value is by paying the worker’s exchange-value, not their use-value. The difference between these two values is the surplus-value generated.