“What right an individual can claim to one part of the world when
according to the Bible, God gave the world to all humanity ?…that
persons own their labor…that ownership being bestowed on each of
us by nature, and that when a person labored…even the mere labor
of picking an apple off a tree…that labor entered into the object and
so the object became property of that person”
….John Locke
It is difficult to determine that Karl Marx's Labor Theory of Value reduces itself into absurdity (reductio ad absurdum) when we do not really know what it is all about. So long as a market is seldom in equilibrium so that economic conditions are ever reverting and fluctuating, a revivalist interpretation of Marx's LTV is instrumental to a true understanding of the nature of capitalism. On the other hand, the failure of the Bolshevik revolution and communism do not by itself constitute a proof that Marx's LTV is irrelevant. Although the events made a significant historical point, they are simply beside the point as the truth still remains that there is much to know about LTV. As a departure from the loose model of market competition, Marx's LTV penetrates into the intricate and deeply entrenched capitalistic relations by simply making it more evident and a lot less complicated. To be certain, Marx's LTV is not “Marxist.” In fact, it recognizes labor as the primary source of value just as the Papal Encyclicals Rerum Novarum and Populorum Progressiorecognize the supremacy of labor in the economic arena.
Marx begins by deviating from David Ricardo's classical Labor Theory of Price which contends that “the amount of labor needed to produce a commodity determines its price (93 percent of the time).” Ricardo conveys that the amount of labor (considered during his time as “subsistent wage”) approximates the prices of commodities given the quondam state of technology. If Ricardo is right, how could he then say that the rise and fall of wages (value of labor) explain the rise and fall of prices when profits exists, organic composition of capital (capital-labor ratio) differs, and wages remain at subsistent level? It appears that Ricardo's theory is true only when the profit rate is zero and organic composition of capital is constant in all industries. The answer is pretty obvious, when productivity of land reaches an optimum, that is, no amount of knowledge and skills can make it more productive, and additional labor as well as capital do not contribute additional output. Everything stops adding value when labor runs out of ideas! This means that land and capital are devoid of productivity without human labor Thus, at subsistence wage, workers buy only up to what their subsistence wage affords so that commodities are produced and sold for an amount equal to workers' ability to pay so that profit falls and wages become equal to prices of commodities.
Ricardo looks at the possibility for population to outrun production (Malthusian hypothesis), so that workers are worse off as the number of mouths to be fed exceeds the supply of commodities. This condition forces workers to invent new version of commodities, new cultivation or exploration of land, and new technology so that as laborers are productive once more, so do land and capital. At any rate, profits turn up again as values of labor deviate further from prices of commodities back in the short run. If we think for a while: does land or capital happen to become productive solely by itself? Certainly not. There must be some kind of human ingenuity responsible for the increase in productivity in either land or capital. In fact, unlike labor, profits are also called rents because once the entrepreneur has the idea, no more work needs to be done to get additional profits. All else becomes incidental though a product of human industry. This is like rent on a piece of land which is entirely dependent on the demand for idea.
Some modern economists think that profit is a loss to the consumer but a gain to the seller and that such “pure transfer” does not create any loss of market efficiency. If so, the increase of the nation's output represents increasing share of capital and declining share to labor so that there is some kind of struggle or conflict arising from inequity which thus results into market inefficiency. It is evident that profit and rent pose a major obstacle in providing an optimal level of economic efficiency, more so when it is a market for the means of production and commodities are not competitive.
Marx ponders if values of labor in fact determine price, as Ricardo suggests. If it is so, then wage-price equality is at least evident to a casual observer within a capitalistic system. Yet, it is not so. Marx thinks that the existence of profits or rents are possible only when wages of workers do not fully compensate for the value they add to capital and land. Marx sees the Ricardian long run and short run wage-price equality and reflects on the short run dynamics of capitalistic market and concludes that only labor adds value to a commodity. This certainly makes sense. He then speculates that labor power, that is the ability of workers to work based on brain and muscle, is determine by the conditions of a capitalistic society (property rights, contract enforcements, state laws, etc.,) so that surplus of labor arises only when workers do more labor than they are paid for, hence, the oft quoted “exploitation of labor surplus” The question really here is who does the work and who doesn't, who gets paid of extra labor?
