Value Research Paper

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In the work of Karl Marx the term value is defined as the labor embodied in the production of commodities, where commodities are goods produced for sale on the market. The concept of value applies only to commodity-producing economies, and the value of any particular commodity is the amount of labor required for its production according to the prevailing technological standards, assuming that the total output level is appropriate to market demand for the good. The embodied labor that defines the values of commodities includes that required to produce the intermediate goods needed in the production of these commodities as well as the direct labor inputs involved. Thus machines are regarded as passing on the labor embodied in them during their own production to what they themselves help produce. Different forms of direct labor are reduced to a common standard by applying a similar principle in calculating the amount of labor required to produce the various skills of different types of labor. More highly skilled labor therefore contributes more value to the production of commodities than does less skilled labor.

It follows that the value of any commodity can be divided into two parts: the dead labor inherent in the intermediate goods employed in production, and the living labor arising from the use of workers of various levels of skill. Marx also subdivides the value contributed by direct labor into a magnitude equal to the value of the commodities contained in the wages received by workers, and a residual magnitude called surplus value which, he believed, constituted the basis of nonwage incomes in capitalism: profits, interest, and rents.

Marx’s concept of value is distinct from any notion of use-value, or utility. He knew that commodities are useful in production or consumption, but he believed that their usefulness has nothing to do with their value, which is determined solely by their conditions of production. Value as Marx defined it is also distinct from exchange value, or price. However, Marx used his value categories to provide a theory of prices in competitive capitalism. He made no claim that values directly determine prices, in the sense of being equal to, or even proportionate to, the prices of the commodities in question. The determination is more complex, and the prices Marx was concerned to explain are only long-period equilibrium prices. These are the prices that prevail in a situation where supplies are fully adjusted to demands in all lines of production, and the rate of payment of all inputs of the same type is equal in all lines of production. He conceived of long-period equilibria as centers of gravitation to which market prices tend, and in doing so Marx placed himself in a long tradition of economic thought that took labor costs to be the key to a proper understanding of such prices, including Adam Smith in the late eighteenth century and David Ricardo in the early nineteenth. This history is examined in great detail and with considerable lucidity by Ronald Meek in his Studies in the Labor Theory of Value (1976). However, Marx also argued that the concept of value and derivative concepts, like surplus value, provided the basis for the correct understanding of much more than equilibrium prices.

In the three volumes of Capital, written in the 1860s, he also made the following three claims. First, surplus value represents exploited (unpaid) labor and all forms of property income in capitalism derived from this. Second, capitalism is therefore an economic system based upon the extraction of unpaid labor from producers by nonproducing classes and, thus, is analogous to systems of production based on slavery and serfdom. Third, as a result, the conflict between workers and property-owners has a structural foundation comparable to the class conflicts of earlier modes of production that had helped to destroy them. Marx argued for these three propositions at considerable length and with great sophistication. But the basic message is straightforward: While capitalism appears to be very different from other types of economy in being grounded in free contract rather than coerced labor, the reality is less dissimilar. Capitalism, too, has an exploitative character and generates conflicts that will contribute to its transcendence.

Like Smith and Ricardo before him, Marx was well aware that values could not account for prices in any simple way. Outside of special circumstances, all three theorists recognized that equilibrium prices would not be equal to values. Smith believed that when property incomes (profits, interest, and rents) existed, values could not provide any explanation of prices whatsoever; they were relevant for understanding prices only in so-called “early and rude” societies where property had not been privatized. However, Smith continued to believe (in some unspecified sense) that labor was the only “true” cost of production, and he sometimes measured prices by the labor they could command in exchange. He was followed here by Thomas Malthus. David Ricardo proved more insightful, refuting Smith’s claim that the very existence of property incomes undermined the capacity of values to explain equilibrium prices. But outside of special circumstances he, too, recognized that values would not be equal to, or proportional to, prices. Some commodity prices would exceed their values and some would fall short of their values, since in equilibrium an equal rate of profit on capital is paid in all lines of activity and the equilibrium price has to be sufficient to allow payment of this rate of profit whatever the capital-intensity of production. It followed from this that the surplus value generated in any line of production would not typically correspond to the property incomes derived from that line of production. Marx sought to resolve this problem by showing that, for capitalism as a whole, prices are transformed values and property incomes are transformed surplus values. Values and surplus values are reallocated between lines of production according to the requirements of long-period equilibrium. So, he maintained, for the capitalist system as a whole, values and surplus values really do determine prices and property incomes. This was the basis for his social and historical claims concerning the exploitative and conflictual nature of capitalism.


Marx’s arguments for the illuminating power of value theory have not proved to be robust, although the central analytical difficulties came to light only in the 1960s, and most earlier criticisms have turned out to be rather weak in comparison. Marx himself was unable to specify rigorously the exact relationship between value magnitudes and price and income magnitudes. His critics, beginning with Ladislaus von Bortkiewicz in 1907, were much more successful. On the basis of reasonable assumptions about technology (as judged by the standards then prevailing in economics), Bortkiewicz and others proved that Marx’s claims with regard to the transformed nature of prices and incomes can be justified. In their The Political Economy of Marx (1988) authors Michael C. Howard and John E. King have outlined the technicalities of the proofs; and they have explained the proofs’ historical development in their two-volume A History of Marxian Economics (1989 and 1992). Despite this, Marx’s claims are true only under restrictive assumptions. Most particularly, when technologies involve joint production, in which more than one type of output results from a production process, or when there are alternative techniques for producing any particular commodity, there may be no sensible way in which commodity values can be computed. Furthermore Ian Steedman, in his work Marx After Sraffa (1977), showed that even when commodity values can be determined, they may not be able to provide a coherent theory of exploitation in terms of surplus value, so that property incomes and class conflicts cannot be explained in the way Marx believed.

It might reasonably be expected that the flaws in a theory as grand as Marx’s value theory would only succumb to something equally grand, not to the mundane fact commodities can be produced jointly in a single process, or that there are alternative processes in which they can be produced. But Marx was not alone in this.

Many of the propositions in Smith’s economics, and even more in that of Ricardo, are also undermined. Similarly, Austrian capital theory and aggregate versions of neoclassical economics do not survive unscathed, as is proved with great economy and elegance in Production of Commodities by Means of Commodities (1960) by Piero Sraffa. Scholars of all schools made the huge mistake of believing that the complexities inherent in joint production and alternative production processes would not undermine results deduced from analyzing simpler and less realistic technologies. An element of irony is also present. Von Bortkiewicz and others who attempted to show rigorously that prices were transformed values, and property incomes were transformed surplus values, were not supporters of the political project of Marxism, while those who elucidated the destructive consequences of joint production technologies and alternative techniques of production were much more sympathetic to socialist politics.

However, the weakness of Marx’s value theory does not fatally undermine Marxism as an intellectual force. Some scholars have continued to defend modified impressive versions of Marx’s account of equilibrium prices, exploitation, and conflict, but without utilizing the concepts of value or surplus value. Three versions are Heinz Kurz and Neri Salvadori’s Theory of Production: A Long Period Analysis (1995); John Roemer’s A General Theory of Exploitation and Class (1982); and Gerry Cohen’s Karl Marx’s Theory of History: A Defense (2000). The ideas presented in these books and other works in the same vein are discussed in the second volume of A History of Marxian Economics by Howard and King. Also Marx’s account of capitalist development and crises can be formulated in terms that are entirely independent of his theory of value and is thus unaffected by the difficulties that this theory has encountered.


  1. Cohen, Gerry A. 2000. Karl Marx’s Theory of History: A Defense. 2nd ed. New York: Oxford University Press.
  2. Howard, Michael C., and John E. King. 1988. The Political Economy of Marx. 2nd ed. New York: New York University Press.
  3. Howard, Michael C., and John E. King. 1989 and 1992. AHistory of Marxian Economics. 2 vols. Princeton, NJ:Princeton University Press.
  4. Kurz, Heinz D., and Neri Salvadori. 1995. Theory of Production: A Long Period Analysis. Cambridge, U.K.: Cambridge University Press.
  5. Meek, Ronald L. 1976. Studies in the Labor Theory of Value. 2nded. New York: Monthly Review Press. (Orig. pub. 1956).
  6. Roemer, John E. 1982. A General Theory of Exploitation and Class. Cambridge, MA: Harvard University Press.

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