What is wrong with the Labour Theory of Value? How value is really created

Polemic Paper, 2020

51 Pages



List of figures


1 Costs, Surplus value and Value

2 Unpaid labour time cannot be defined as a production factor

3 Expected value and offer price

4 Expected value

5 Reference points for value relationships

6 The market

7 The value is established on the market

8 The driving forces for value creation

9 The social relationship value: characteristics

10 The components of value

11 Value is assigned to commodities and their value equivalents at the social level by means of value relationships

12 The Social Relationships Value and Property

13 Prerequisites for value relationships:

14 The value and its reference points - how are the reference points are formed

15 Comparison of human and mechanical labour power and the labour power Nature

16 How reference points of value relationships are integrated into society

17 Human and mechanical labour power and the labour power Nature

18 The economic exchange

19 Sources

List of figures

Figure 1: Value as a social relationship - where it is formed, where it works, where it doesn't

Figure 2: The classic interpretation of the Labour Theory of Value - unpaid and paid labour time

Figure 3: Updated presentation of value theory - entrepreneur's side

Figure 4: The entrepreneur unilaterally instantiates a value relationship

Figure 5: The value relationship is completed successfully

Figure 6: Comparison of the social relationships between value and property

Figure 7: How the reference points for value relationships are formed

Figure 8: Value formation for archaeological objects

Figure 9: Total volume of all commodities to be distributed economically and the associated purchasing power


The following arguments are based on the book "Mit Marx zur Marktwirtschaft?" ["With Marx to a Market Economy /1/.

Trade is not included as an extra institution in the arguments put forward in this discussion paper, in order to simplify the explanations. Buyers and entrepreneurs can represent individuals or enterprises.

“Economics is not concerned with things but with relations between persons, and in the final analysis between classes; these relations however are always bound to things and appear as things." (Friedrich Engels: Karl Marx "A Contribution to the Critique of Political Economy")

One can almost completely agree with this statement. Value is a relationship that people enter into with one another, specifically, exchange partners. The aim is the value-equivalent exchange of property for property (lease or similar is not mentioned separately here) (Figure. 1).

The phrase "...are however always bound to things and appear as things" is not quite accurate.

In contrast to the classical interpretation of the Labour Theory of Value, value is as equally related to idealized things, such as ideas, musical performances, all kinds of services, etc., as it is to certain natural commodities.

In many value relationships, typical commodities, such as technical devices, are exchanged. The initially, only potential, commodities are the property of the entrepreneurs after their completion. It is with such commodities that we will begin here.

1 1 Costs, Surplus value and Value

- The production of initially potential commodities incurs costs for the entrepreneurs. Marx divided this into the constant capital c (machines and tools, buildings, consumables, raw materials, supplier products etc.) and the variable capital v (the values of the labour power, i.e. the wages and salaries of the employees, in many cases also the salaries of the entrepreneurs themselves, at least in part).
- Entrepreneurs want to be reimbursed for these costs when they sell their commodities. However, their real goal is to get more than they spent on production.
- The costs of both constant and variable capital are allocated proportionally to each (potential) commodity in order to determine the necessary payment for each product.
- The cost of labour power is so low that entrepreneurs usually earn more money when selling their commodities than they have spent on labour and constant capital. This fact is illustrated by Karl Marx with the statement that workers are only paid for a part of their labour time. This part corresponds to the “necessary” labour time. The work results of the unpaid part of the labour time would be appropriated by the entrepreneurs free of charge as surplus value s. Marx derives the value formula: W = c + v + s from the information on the costs and the (expected) surplus value.

He therefore states that value results from the production costs c + v and the (expected) surplus value. According to Marx, surplus value is produced with the commodity. /2/

2 Unpaid labour time cannot be defined as a production factor

- However, Marx's statement on unpaid labour time only corresponds to a simplification of the situation in the form of a graphic representation. In reality entrepreneurs pay labour power for the full labour time, e.g. for 8 hours a day and not for 4 hours with the addition that the workers would have to work 4 hours unpaid. However, the wages/salaries are so low that the picture of unpaid labour time can still be drawn.
- The fact that entrepreneurs do not pay labour power for 4 hours and tell workers that they still have to work 8 hours is not only due to the fact that such a pay regime is not easy to convey psychologically. There is also the practical reason that the amount of unpaid labour time cannot be determined on the production side of the commodity society (Figure 2). More on this in the following section.

3 Expected value and offer price

- Entrepreneurs want to make more money with the production of commodities than they have spent on them. That is the goal of capitalist production.
- Entrepreneurs can only achieve this goal if they have the commodities developed and manufactured in such a way that buyers can be found, i.e. that the commodities have a use-value for people.
- But the (initially only potential) commodities must not have only basic use-values. The use-values must be assessed by potential buyers as being so good that they are willing to give up value-equivalents, usually in the form of money, in exchange for these commodities.
- If there are no buyers for the potential commodities, the labour expended on them was not socially useful and they are therefore classified as not creating value. /3/ /4/ Such labour is also referred to as "private labour" because it is carried out in the private areas of the entrepreneur and is not effective beyond that.
- In order to sell their commodities, entrepreneurs have to offer them on the market. To do this, they have to make it clear to potential buyers what payment they expect.
- They calculate the required payment by the value formula noted above. They link the result to the potential commodity as an expected value in the form of the offer price.
- But if the value formula is applied to the production side of the commodity society, the result is only the expected value, because the commodity is initially only a potential one. It is only on the market that a decision is made as to whether the labour expended on the commodity was socially useful and thus value-creating, and consequently whether the potential commodity is transformed into a real commodity. Accordingly, the parameters of the value formula should be qualified accordingly: W|expected = c|cost factor; replacement expected + v|cost factor; replacement expected + s|expected (Figure 3).

Whether a buyer can be found at all for the initially potential commodity, and if so, whether a buyer will replace c and v completely, whether the buyer will pay a surplus value, and if so, to what extent, is not known on the production side of the commodity society.

4 Expected value

- As the amount of the surplus value that buyers will pay for the individual commodities is not known before the sale and it is not even certain whether the (potential) commodities can be sold, the share of the so-called unpaid labour time before the sale of the potential commodities can only be estimated. The production result of the unpaid labour time only appears as surplus value at the time of sale (the reference points for the surplus value payments are produced in "unpaid labour time"). As the surplus value payments are not certain, it is not certain whether there will be "unpaid labour time" before the commodities are sold. Compulsions to buy the commodities or to pay surplus value for them cannot(!) be built into the potential commodities at production.
- If entrepreneurs are unsuccessful in obtaining surplus value from buyers by selling the commodities, then all the labour time expended on these commodities is merely necessary labour time.

5 Reference points for value relationships

- It follows that as the values of the initially potential commodities do not exist before they are sold no value is created by their production. Only prerequisites or reference points for possible value relationships are produced.
- By offering his potential commodities on the market, the entrepreneur unilaterally instantiates a value relationship (Figure 4).
- The entrepreneur brings his potential commodities into the value relationship as a reference point, combined with his expected value in the form of the offer price.

6 The Market

- Buyers and entrepreneurs face each other in the market.
- The aim of the buyer is to obtain as much use-value as possible with as little money as possible.
- The aim of the entrepreneur is to generate as much real surplus value as possible with as little capital input as possible.
- Potential buyers discover the products in the market. In doing so, they participate in value relationships that have already been instantiated. What is most important for them is what benefit these potential commodities will have for them. Only if the (expected) benefit appears high enough compared to other products for the same or other objectives will potential buyers be willing to give up value equivalents in exchange.

7 The value is established on the market

- Value creation does not mean the creation of foundations or prerequisites for value relationships.
- Value is formed as a social relationship between people, specifically between buyer and entrepreneur, in relation to the commodities exchanged.
- The value describes how buyers and sellers relate to each other in relation to the exchange commodities. It describes what part of one's own right to a percentage of all commodities to be economically distributed in the currency area, i.e. what amount of money the buyer gives the entrepreneur as payment for his commodities.
- The value is formed by buyers and entrepreneurs together when they have agreed on a common magnitude of value and then exchange commodities for money:
- This common magnitude of value can be formed in dialogue - this is typical of the bazaar and wholesale trade, but in most cases (in terms of numbers) it is achieved by the buyer adapting to the entrepreneur's proposals - department stores and supermarkets are typical of this.
- The seller has included his potential commodities together with his expected value in the form of the offer price in the value relationship.
- The buyer will adapt his perception of the potential commodities to that of the entrepreneur or try to bargain. He then brings his resulting assessment of the labour results into the value relationship in the form of the value equivalent in the amount of the common magnitude of value, usually in the form of money. Or he refrains from buying, leaving the value relationship without a successful conclusion.
- Value is a relationship, not a singularity!
- The common magnitude of value stands for the objective share of the value relationship:
- Only this common magnitude of value is stated as an objective amount in the sales contract or in the invoice.
- Taxes only have to be paid on this objective magnitude of value.
- After the exchange, the buyer's purchasing power is objectively lower by the common magnitude of value of the value relationship and that of the entrepreneur is objectively higher by this common magnitude of value.
- Linked only to this common magnitude of value, the commodity should be included in the total value range of all commodities to be economically distributed and thus in the scope of the means of subsistence to which the real values of the labour power are related.
- All other magnitudes of value (often referred to in this context, in contrast to the exchange value, as commodity or labour value) are one-sided desired values and have no social equivalent as real values!
- There can be no difference between the real and the exchange value.
- This difference was defined by Karl Marx, because in his time he assumed that value would be "objectified" with the labour /5/, but with this interpretation he could not explain the difference between the market value and the allegedly objectified value. However, a social relationship cannot be objectified - it operates between people.
- Anything that deviates from the common magnitude of value on which the exchange partners have agreed is a one-sided and idealized value share and not part of the value relationship.
- The value formula for real value can only be applied in the market, because value cannot be produced (Figure 5).
- The more precise value formula is therefore: W|real = c|replacing + v|replacing + s|real.
- It is also clear from this value formula that the value is formed on the market, because the value does not include the production costs c and v and the expected surplus value s, but the replacement of the production costs and the real surplus value, which is only created if c and v are replaced beforehand. All of this only happens in the market.
- This updated value formula does not quite agree with that of Marx. Marx applies his formula to the production side of the commodity society:

- For example, 500 pieces of a product are manufactured. According to Marx, the value is calculated as W = (c + v + s) x 500 = (€60 + €90 + €70) x 500 = €220 x 500 = €110,000. The result represents an expected value.
- If only 250 of the 500 products produced are sold, the total value drops to €55,000. There would be no total exchange value of €55,000 and a real commodity or labour value of €110,000.
- If all products are sold, but not at the expected surplus value, the real value would also differ from the expected value.

Example W = (€60 + €90 + €50) x 500 = €200 x 500 = €100,000. In this example, the entrepreneur can only induce buyers to pay €50 instead of the €70 surplus value. Thus, in this case there would not be a total exchange value of €100,000 and a real total commodity or labour value of €110,000, as the classical interpreters of the Labour Theory of Value claim, but only a real value of €100,000. This is a completely objective fact. In this case a proposed value of €110,000 would be an idealized value-wish-concept.

- The real surplus value is the actual goal of production.
- The entrepreneur can only make a profit from the real surplus value, which is paid by the buyer.
- Only with the real surplus value can a part of the labour expended be declared as unpaid labour time.
- Consequently, the buyer does not pay directly for the expended labour time, but estimates the results of the labour and pays for the result of the labour. If he is satisfied with it, he will use it to pay the expected price and thus replace the expenses c and v (and thus also the labour time) and pay the expected surplus value.
- At the bazaar: If the labour results do not quite meet his expectations, he pays less than the entrepreneur expects.
- In a department store: there, some of the buyers who are not completely satisfied will refrain from buying, others will still buy the commodities at the required price, i.e. they adapt their perceptions to those of the entrepreneur. The result, viewed over all products, can possibly mean the same profit for the entrepreneur as when selling his products at the bazaar, i.e. the total profit can be approximately the same in the department store as at the bazaar.
- Value is not a singularity.

Also because the buyer must at least partly compensate the production costs c and v for the value to be achieved, and he usually pays even more, namely the surplus value in addition, it becomes clear that the value is not a singularity but a relationship between the exchange partners.

8 The driving forces for value creation

- The driving forces for buyers and entrepreneurs to enter into a value relationship with each other are their needs for the partner's exchange commodity.
- The need for the entrepreneur's commodity must be strong enough to induce the buyer to part with his money in the amount that the entrepreneur will still accept as payment for the commodity.
- This need has to be a weighted one, as the buyer needs and wants various things for his subsistence, but has only a limited amount of money available.
- The entrepreneur's need for the buyer's money must be strong enough for him to be willing to part with his commodity.
- This need is also a weighted one for the entrepreneur, as he could sell the commodity to any buyer. He will try to obtain the best possible value equivalent for his commodity.
- In order for value to be developed in society, driving forces had to be at work:

Above all, the value counteracts the waste of resources.

1. On the production side of the commodity society: The producer wants to earn as much more as possible from his product than the expenditures (costs) incurred by him in the production of the product. This is all the more successful, the less labour time is expended on the manufacture of each product, the fewer resources are used for the production of the product and the better the design of the product is adapted to the needs of the buyers (surplus value).

Karl Marx formulates this for at least one aspect of the production side with the concept of socially useful labour.

What (potential) buyers consider to be too great an expenditure of labour (i.e. more than the average amount of labour required by society or more than just "useful labour") is not bought (the potential commodities thus remain at this stage) or this share is not paid for. /3/

2. On the buyer's side of the commodity society: For the buyer, the value counteracts the useless accumulation of barter commodities: The needs of the buyer (as with virtually all people) are greater than his means of satisfying them. The value encourages the buyer to weight his needs.

The buyer side is also covered by Marx's formulation: Whatever products are recognized by people as unimportant/not necessary will not find buyers. Consequently, the corresponding “labour” was not value-creating. The resources can be better used in the future.

Whether such assessments are objectively justified or based on misjudgements cannot be determined from the value relationships.

- However, as Marx sees the surplus value and also the value as produced on the production side of the commodity society before sale, he cannot capture the product design, the content of books etc. as a driving force for the formation of magnitudes of value. /2/
- For a value as described by the classical interpretation of the Labour Theory of Value, namely a value based on labour time without consideration of the labour results, there would be no driving force for its formation: A shipyard owner for yachts facing insolvency could once again buy expensive materials and highly paid labour power and thus, according to W = c + v + s, produce expensive yachts, combine these with high expectations of surplus value and declare all these products as having "great value" although he would not find any buyers for them.

It is not value that can lead to such solutions, but only the driving forces "wasting resources" and "expending a lot of labour time".

If it were to be argued that only the average socially useful labour time would be effective, this would in turn mean the inclusion of the market in value formation and thus the assessment of labour results. An "average labour time" does not exist as such, but can only be calculated retrospectively from many individual and real effective value formations in connection with their real labour times.

In the case of yachts, too, it would become very clear that the value is not only dependent on the expended labour time.

9 The social relationship value: characteristics

- A value relationship is established on the market between buyer and entrepreneur with the aim of exchanging property for property of equivalent value.
- The entrepreneur brings the potential commodity, combined with the expected value in the form of the offer price, into the value relationship.
- The buyer contributes his assessment of the labour result to the value relationship, i.e. he determines as best as possible the expected utility value of the commodity (suitability for the target function, assumed quality, assumed service life, brand name etc., plus comparison with other products).
- If his assessment does not agree with that of the entrepreneur, he either adjusts his assessment, or tries to barter or foregoes the purchase.
- If buyer and entrepreneur arrive at a common magnitude of value, the buyer will make his assessment visible and effective on the social level in abstract form as a value equivalent. In this way, the buyer directly acknowledges the results of all the expenditure and thus indirectly both the consumption of resources and the labour time required for production. Within the framework of the common magnitude of value, the buyer also pays for the surplus value.
- If the potential buyer decides not to buy the potential commodity, the value relationship between him and the entrepreneur is terminated without a successful conclusion. This also means that the commodity remains in a potential state, combined with an expected value that does not correspond to any real value. Therefore, no value is formed in such a case. The labour expended on the potential commodity is qualified as not socially useful, because it is not useful at the social level - until perhaps a buyer may be found one day. Or the potential commodity must be disposed of as such.
- The social relationship value cannot be reduced to labour time, as claimed by the classical interpretation of the Labour Theory of Value.
- The most important thing is how the results of the labour are assessed, i.e. what has been achieved in the labour time: An umbrella, which is usually sold for €40 and in whose covering the entrepreneur, after studying the classical interpretation of the Labour Theory of Value, has holes punched in it in order to increase the labour time and thus supposedly the value, will certainly not become "more valuable" through such a "product improvement", i.e. the entrepreneur would certainly not be able to sell it for €45, even if the cost of the holes would be €5 per umbrella (including the expected surplus value).

10 The components of value

- As a social relationship, the value must include an objective share, because it goes beyond the individual and idealized area of a single person - it works between the exchange partners on the social level.
- The objective share of the value is the common magnitude of value agreed on by the buyer and the entrepreneur. The exchange commodities, to which the exchange partners relate the value relationship, are practically always of an objective nature and closely linked to the common magnitude of value, but only have an effect on the social relationship via the exchange partners, i.e. they are not directly components of the value and do not contain any value - it is "only" related to them.
- The objective magnitude of value becomes objectively perceptible not only through the purchase contract or invoice and value-added tax, but also through the migration of purchasing power between buyer and entrepreneur in the amount of the objective magnitude of value.
- In the exchange of commodity for commodity, the exchange commodities are two or more commodities of equivalent value; in the exchange of a commodity for money, money corresponds quite objectively to a right to a percentage share of all commodities to be distributed economically.
- If a commodity is exchanged for money, both exchange partners see the commodity as equivalent in value to this amount of money.
- As a social relationship, however, value must also have idealized components, because it works between people.
- These idealized components are the idealized reflections of the common objective magnitude of value of the exchange partners, which are connected with the reflections of the exchange commodities in them. A social relationship cannot be separated from people.
- The driving forces behind the formation of the value relationship are needs that are weighted in an economic sense.

11 Value is assigned to commodities and their value equivalents at the social level by means of value relationships.

- This happens in the same way with

a) a commodity in the form of a technical product,
b) a commodity in the form of a chargeable musical performance,
c) the substitute commodity money (in some cases the simultaneously correct commodity, gold),
d) the commodity labour power as embodied in a worker, etc.

- This is particularly clear in the case of the commodity labour power embodied in a worker: the worker can assign a very high value to his labour power, e.g. after the loss of a job, which could, perhaps, include very high training costs, his skills and knowledge ( c ) and perhaps also his previous entitlement to means of subsistence (value of the worker’s labour power at the previous employer - v ). If the worker is not re-employed, this value will remain an expected value.
- If the worker is re-employed, this would be done through a value relationship with the new employer.
- In this context, however, nobody will put a new value in the worker. Consequently, this value cannot be calculated on the basis of training periods, mechanical skills, optical recognition capabilities, etc., either from within or from external formation activities. It may be possible to obtain expected values from such calculations, as with any other commodity.
- Only the real salary, which is negotiated on the value relationship as a common factor between the entrepreneur and the worker, is relevant for the value of the worker’s labour power. And only when this salary is paid in the legal sense, equivalent to all other commodities as well - on the market, in this case the labour power market.
- Before that, the "value of the worker’s labour power" is only a fictitious value. The salary cannot be calculated directly from the properties of the worker, just as the value of a commodity in the form of a technical device cannot be calculated directly from the properties of this commodity or from the labour time spent on it.


Excerpt out of 51 pages


What is wrong with the Labour Theory of Value? How value is really created
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ISBN (Book)
Value theory, Labour Theory of Value, Market economy
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Rainer Lippert (Author), 2020, What is wrong with the Labour Theory of Value? How value is really created, Munich, GRIN Verlag, https://www.grin.com/document/933277


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