Labor Theory of Value
Some people believe that, since all economic goods require some amount of labor to produce (even “free” goods require the labor to pick them up off the ground, pluck them off a bush, or capture them with one’s hands,) economic goods get their value from the labor required for their production.
Formal explanations of the labor theory of value frequently refer to the “total amount of socially necessary labor required to produce” the item. The theory also excludes the use or pleasure of the owner. This language, however, uses vague and abstract terms to explain the source of value—an already very abstract term.
But, from where does labor derive its value? The idea that labor puts value into goods implies that labor itself has some sort of intrinsic value that it can transfer to the economic good in the process of production. If labor has an intrinsic value, that would mean it had the same value when used to dig holes with no purpose as it did to plant crops that might feed a family or a village.
Whether labor has intrinsic value or acquires value for some other mysterious source, how does a person measure the value of labor?
What unit of measure do you use to value labor. Some have suggested using time is a measure of labor value. Thus, a product that required two hours to build would have a value twice that of a product that took one hour to build. Using time as a measure of value would mean that two cabinets, identical in every feature, would have different values because one cabinetmaker took twice as long to build his cabinet as the other cabinetmaker did to build his.
Even Karl Marx, the renown advocate of labor value, stumbled on this one.
Labor Theory advocates get around this pesky problem by saying value increases in proportion to labor performed with average skill and average productivity. But, in attempting to account for the inconsistency of time as a measure of value, theorists have injected the difficult task of measuring skill and productivity.
‘Round and ‘round they go.
So I turn the problem over to you, reader. If you believe that labor adds value to economic goods, explain the source and the unit of measure for that value.
Next, I will turn my attention to the “Cost of Production” Theory of Value.