labour theory of value

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labour theory of value

a doctrine developed by the classical economists (particularly Adam SMITH and David RICARDO) that states that the value of a GOOD is determined by the amount of LABOUR input needed to produce that good. Thus, the ratio of the equilibrium prices of two commodities is directly proportional to the ratio of labour required to produce them.

Smith was the first to tentatively suggest a labour theory of value, although he acknowledged that the value of a good must be determined by a number of input costs: RENT, WAGES and PROFIT, even if labour did constitute the greatest part of final value. Ricardo accepted that profits and rent may have to be taken into account but that it did not detract from his main argument of relative values between two goods being fundamentally determined by labour cost. Karl MARX developed Ricardo's ideas, decomposing labour value into three constituent parts. The three parts are ‘constant capital’ (the capital used up in production),‘variable capital’ (human labour input), and ‘surplus value’ (the excess value over and above labour and capital used in the production process). Where surplus value exists, there is exploitation of the labour input insomuch as they are being paid less than their full input value.

The labour theory of value was replaced towards the end of the 19th century by the MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION, which took into account the contribution of all factor inputs into the production process, not just labour. See CLASSICAL ECONOMICS.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
Moreover, the determination of price is associated with some form of a labor theory of value. In 1977, Shaikh provided an iterative solution to the conversion of values, as established by socially necessary labor-time, into various forms of prices until the market prices are obtained.
Locke wove a labor theory of property into his labor theory of value. (1) He postulated that "every Man has a Property in his own Person," and so "The Labour of his Body, and the Work of his Hands ...
Baronian (economics, Sorbonne, Paris) presents a critical study of Marx's labor theory of value and the "double character" of labor, focusing on the category of "living labor," which he argues is the linchpin of much of Marx's ability to make sense of capitalism.
Adorno represents poetic artifacts the way the labor theory of value represents commodities: the meaning and value of the work derives from the process of its production.
The micro theories are further classified as marginal productive theory, bargaining theory, productive efficiency theory, human-capital theory and labor theory of value.
For example, Bohm-Bawerk's famous, and widely perceived as the strongest criticism of Marxian economics, Karl Marx and the Close of His System (7), identifies and skillfully exploits a contradiction between Marxian labor theory of value of Das Kapital I and the average rate of profit of Das Kapital III.
According to Equation 3, in a closed economy the relative price of wheat rises with the increasing labor content of the marginal unit of wheat produced, which is consistent with the labor theory of value. (9) Differentiation of Equation 3, which relates the terms of trade p to the value of [L.sub.w], yields
From his failure to recognize this point, Sowell is never able to absolve the classical authors, with the possible exception of Ricardo, from the false charge that they argued a labor theory of value. He also fails to notice that Smith, Ricardo, and J.
(50) The labor theory of value does not appeal explicitly to the common.
What I will call "the attention theory of value" finds in the notion of "labor;" elaborated in Marx's labor theory of value, the prototype of the newest source of value production under capitalism: value-producing human attention.
(One authority refers to "major technical change" as a change in hand-axe construction over "a few thousand years.") There was little or no capital investment beyond s few simple tools, and a labor theory of value was appropriate.