What is the Labor Theory of Value?

1. 1. What Is Subjective Value? (video): Professor Don Boudreaux explains why the value of goods is subjective, as opposed to objective. 
   2. Marx’s Labor Theory of Value (online course module): Guinevere Liberty Nell explains Marx’s labor theory of value in the context of the economic history of the Soviet Union. 
   3. Subjective vs. Objective Value: The Economist and the Philosopher (video): Professor Aeon Skoble explains the differences in how economists and philosophers conceive of “value”. 

Daniel Russell: Introducing the labor theory. The labor theory of value was a common theory in the 18th and 19th centuries about where prices come from and how a thing’s price is related to that thing’s value. What exactly is a thing’s price? Or to put it another way, what is a good or service really worth? What is its real value? A modern economist would answer that the value of a good or service is determined subjectively. To put it very simply, the value of the thing that’s being traded just is whatever the people doing the trading can both agree upon within an exchange that each of them would prefer. You might say that there is no such thing as the real value, if you mean a value that’s somehow independent of the bargain that the traders actually make.
But for a long time, economists generally thought of the value of a good or service as something objective. That is, something about the object itself that’s being traded. On this view, there is some basic bearer of value in the world, and all other values and prices can be counted as multiples of that basic unit of real value. Historically, the most significant version of this theory is that the basic bearer of value is human labor, measured in the hours of work that have to be given up in order to produce some good or service. That is the labor theory of value.
Adam Smith summed up the labor theory this way: “The real price of everything, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” That toil and trouble includes the labor necessary to sustain oneself, as well as to replenish any materials used and to cover the costs of wear and tear on any tools or machines. But in order to improve one’s standard of living over time, there must also be extra labor to create a surplus, like the tools and materials needed to build a new, bigger house, as well as enough food to last on the days spent building.
When two people exchange, the price the consumer pays to the producer is just equal to the amount of labor time that is required to produce the commodity. That doesn’t mean the producer can just increase the value by working more slowly. The value doesn’t depend on how much time the production actually takes, but on how much time it generally takes given the level of productivity that’s possible in society at the time. The price is equal to the value of the labor that is socially necessary to provide the producer’s subsistence, to replace the spent capital, and to secure a surplus.
It’s important to see that on this theory, everything on the production side is labor. This is easy enough to see in the case of the living, breathing work that goes into production. But even the capital that makes the work possible can be seen as a kind of reified labor. Karl Marx sometimes described capital as accumulated labor, because it is the result of labor done in the past and it has become embodied, so to speak, in the form of tools and machines and factories, in the form of materials, and in the form of savings. These things are often called the means of production, or just capital. Neither work nor capital produce anything without the other. It always takes these two factors, these two types of labor, to produce anything.
The labor theory of value is a theory about the nature of prices. It says that the real price of any good or service depends on some feature of that good or service. In particular, its real price depends on the quantity of all the labor that is socially necessary as an input to the production of that good or service. Very simply put, prices count the hours of work required.