Labor Value

A key element of Marx’s explanation of economics is the Labor Theory of Value. Essentially, Marx argued that the “real” value of an object was the amount of work needed to produce the thing combined with any labor it would “save” the end user.

The interesting thing is that Marx did not come up with this idea. Indeed, it was none other than the originator of the idea of the “invisible hand of the free market,” Adam Smith. Smith’s writing was not nearly as pro-capitalism as many of us (including myself) were taught back in high school, but that’s a subject for another article. Anyway, as Adam Smith explained it in The Wealth of Nations:

“The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people.”

This is, admittedly, a gross over-simplification of the Labor Theory of Value and huge volumes have been written expounding on this point, but for the beginning leftist it’s sufficient to understand that, from a Marxist perspective, the true value of a product or service is based on the labor that is put into it and gotten from it.
Take a machine that splits firewood, for example. If you’ve ever split a cord of firewood you know that it takes a lot of labor to do this work by hand. So if a firewood seller wants to buy a wood splitting machine, they should consider the value of the labor as the sum of two values:

1. The value of the labor saved by owning the machine (i.e., how much wood the machine can split in a day vs. doing it by hand) after all the extra costs of maintenance, fuel, etc.
2. The value of the labor used to produce the machine (i.e., mining and shaping the materials used to create the machine).

For leftists, Labor Value is essential to understanding how capitalists exploit workers and create rampant inefficiencies in our society. Let’s assume that our wood splitting machine is sold for $1,000. The owners of the factory that produced the wood splitting machine did not pay their workers $1,000. Perhaps if we calculated the hourly wages paid to the 10 factory workers to produce a single machine they were paid $200, total, for their labor. Perhaps the costs of materials that went into the machine comes to $300. Perhaps marketing, management, electricity, and other such costs also added up to $300. This still leaves the owners of the company with a $200 profit.

Perhaps the owner was a single person, and that person works very hard every day to keep the business operating. Certainly the owner is entitled to compensation for this labor. But in this scenario, the owner receives $200 for the production of a single machine, while each individual laborer on the 10 person team received only $20. Did the owner really work 10 times harder than each person on the factory floor? It’s very doubtful.

This is why leftists consider the profits collected by capitalists to be stolen labor value.

Say an unscrupulous merchant purchases a bunch of cheap knives for $1 each. These are extremely low quality knives that can barely cut through a stick of butter on a hot summer day. The merchant then repackages the knives and markets them as “high quality razor sharp precision blade knives” with a photograph of a knife easily cutting through a metal rod. With this packaging, the merchant sells the entire lot of knives for $20 each. Most people would agree that this merchant is being unscrupulous and stealing value from the customers who are fooled into buying the knife.

But what about the merchant who, rather than ruthlessly inflating the price of goods, cuts costs by heartlessly driving down the wages of needy workers? Aren’t both of these practices essentially dishonest theft of value?

In fact most capitalist entities strive to steal labor value from their workers and their customers. For-profit companies will do everything they can to increase profits, because profits are the sole motivating factor for a capitalist enterprise. There are only two ways to increase profits: by increasing the sale price or decreasing the cost of production (which usually means cutting the cost of labor).

Leftists believe that workers are entitled to the full value of their labor, and that capitalist profits are therefore theft. If you are a worker, then you are being exploited by the capitalists who own the company you work for and you are therefore being exploited and oppressed by capitalism. If you purchase goods, you are also being exploited, since you are likely paying prices far higher than the labor values of the the products and services you buy.

There are many more aspects to the nature of capitalistic exploitation, and I will cover many of these in future appendix entries. If you’d like to learn more now, I highly recommend the first chapter of The Conquest of Bread, “Our Riches” (you can read it for free online here). You can also read the Communist Manifesto for a basic intro to the principles of Marxism.