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I have read that the Labour Theory of Value holds that the value of a good or service is determined by the total amount of labour involved in its production. To account for this properly, we must count not only the labour directly involved in finishing a good, but also the labour needed to produce the tools used in that process.

I am curious: how does the LTV suggest the labour involved in producing a machine should be divided across the goods that machine is used to make. In particular,

  • If the output of a machine is arbitrarily reduced, what happens to the value of the goods being produced? If we simply divide the labour put into the machine across the units produced then it seems like their value should increase, but then it seems like the whole notion of value becomes quite arbitrary.
  • Suppose I built a machine that, in any given hour, produces one unit of penicillin and one unit of randomly mixed chemicals (from the same raw materials). Does this mean that penicillin and mixed chemicals should have equal value?
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  • $\begingroup$ Which LTV? Marx, Mandel, Smith, Ricardo? $\endgroup$ – Samuel Russell Nov 14 '18 at 7:35
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"I have read that the Labour Theory of Value holds that the value of a good or service is determined by the total amount of labour involved in its production." That would be Adam Smith's version of the LTV, which according to him only holds in pre-capitalist societies. Karl Marx's version is thus: the value of a good or service is determined by the total amount of socially-necessary labor involved in its production. Socially necessary labor is basically the average amount of labor a society (industry, trading network or whatever) requires to produce a good. It takes far less labor time on average to produce randomly mixed chemicals than to produce penicillin from chemical precursors.

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  • $\begingroup$ "It takes far less labor time on average to produce randomly mixed chemicals than to produce penicillin from chemical precursors.": Even if it took more time, its value would probably be zero because randomly mixed chemicals have no use value. See Capital, Volume 1, Chapter 1, at the very end of Section 1: "Lastly, nothing can have value without being an object of utility. If the thing is useless, so is the labour contained in it [...] and therefore [that labour] creates no value." $\endgroup$ – Giorgio Dec 1 '17 at 13:27
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If the output of a machine is arbitrarily reduced, what happens to the value of the goods being produced? If we simply divide the labour put into the machine across the units produced then it seems like their value should increase, but then it seems like the whole notion of value becomes quite arbitrary.

According to the LTV, machinery transfers a portion of its value to each item produced. E.g. if a machine is worth 1000 \$ and can produce 10000 widgets during a lifetime of 10 years (after which it breaks and must be replaced), then it transfers 0.1 \$ to each widget produced.

Suppose that the machine's lifetime is determined by how much it is used, i.e. by the number of widgets produced. Then, if you reduce the output by producing fewer widgets per unit of time, then the machine will still produce 10000 widgets during a longer lifetime, and therefore each widget will still receive 0.1 \$ of value from the machine.

Suppose that the machine's lifetime is also determined by other factors and that it wears off even when it is not used. Then reducing the output will indeed increase the value the machine transfers to each widget produced for that particular producer.

However, since the value of goods on the market is determined by the socially necessary labour time, that producer will still have to sell their widgets according to the value they would have when produced under normal, average conditions: society (the market) will not be willing to buy at a higher price from that producer just because he or she has wasted part of the value of their machinery.

Suppose I built a machine that, in any given hour, produces one unit of penicillin and one unit of randomly mixed chemicals (from the same raw materials). Does this mean that penicillin and mixed chemicals should have equal value?

You have to break it up into two steps:

  1. Does a good have any use value, i.e. does it satisfy any need? Penicillin: YES. Randomly mixed chemicals: NO.
  2. If a good has a use value (e.g. penicillin) then you measure its (exchange) value in socially necessary labour time. If a good has no use value (randomly mixed chemicals), then it has no exchange value either.

So, no penicillin and randomly mixed chemicals do not have equal value according to the LTV: the machine will pass its value to the penicillin but not to the randomly mixed chemicals. See e.g. Capital, Volume 1, Part 1, Chapter 1, at the very end of Section 1: "Lastly, nothing can have value without being an object of utility. If the thing is useless, so is the labour contained in it [...] and therefore [that labour] creates no value."

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Suppose I built a machine that, in any given hour, produces one unit of penicillin and one unit of randomly mixed chemicals (from the same raw materials). Does this mean that penicillin and mixed chemicals should have equal value?

That's an interesting issue, which we could call the question of by-products. It isn't, that I know, directly addressed by Marx, but I think we can logically deduce an answer to it from his other points.

If a given production process results in two different products, then the total value of both products is given by the total labour time embodied in both of them.

We could then make the following hypothesis:

  1. One of the products has a use value, the other has not.
  2. Both products have a use value.

If 1., then the value of the product that has a use value is the total value produced.

If 2., then the total value of the production process is spread among both products. In terms of price, this does not mean that they each must have the same price - price gravitates around value but is not determined by it. In practice, the prices are given by supply and demand.

Let's suppose that in a given society, it is usual to consume bread without the crust. So the crust has no use value; only the crumb is useful, only the crumb is sold. Its price gravitates around the value of the whole productive process, which, in the case, besides the usual mixing and baking, includes the cutting away of the crust (and so, it is more expensive than the bread as a whole, crust included). A baker can sell his bread cheaper if he sells it with the crust, thus "outsourcing" the task of cutting the crust off to the consumer - as long as the consumers recognise this whole bread as a use value of itself.

If on the other hand the baker does the cutting himself, he ends with up with two products: a commodity - the bread crumb - and waste - the crust.

Suppose now that the baker discovers that there is a demand - ie, a use value - for the crust (he can sell it to pigherds, who feed their pigs on bread crust, for instance). In this case, he now has two commodities at the end of his productive process. That is, the labour that it takes to produce one is the same labour that it takes to produce both. Their total value is the total value of the whole productive process.

The baker can now sell his crustless bread for a lower price than previously, because he can realise some of the value by selling the crust apart, to different costumers. Obviously, as long as this remains his commercial secret, he may instead make superprofits: he sells his crustless bread for the same price as before, and sells the crust for any price he finds pigherds eager to buy it. This doesn't mean that he is producing more value, but that he is engaging in unequal exchanges, giving away less value than he is getting for it in exchange.

But this would be an exceptional situation: with time, other bakers will realise they can do the same thing; at this point, the market will bring the total prices of both commodities to the same level as the former price of the previously sole commodity. The proportion between the prices of each commodity, however, cannot be explained by labour embodied in each of them, for it is the same labour. They will be fixed by supply and demand considerations, which in turn rely on other productive processes - that of producing pork, regarding the sale of crust, that of re-producing labour power, regarding the sale of the crumb.

So, back to your example of penicilin and mixed chemicals, it depends on whether there is a use for mixed chemicals or not. If not, all the value of this productive process is embodied in penicilin. If yes, then the value of both penicilin and the other chemicals is the "same", not as in "equal", but as in "inseparable", and will be distributed among the price of both commodities, not in proportion to necessary labour, but in proportion to market considerations.

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