If I spend 10 hours of labor polishing a turd, who will be willing to pay me fair wages for those 10 hours?
Suffice to say, that critique does not reflect an accurate understanding of the Labour Theory of Value.
Karl Marx and Friedrich Engels penned a three volume monstrosity called Das Kapital as their way of illustrating that they understood every minutia of every facet of how the economy works. As communists, it was their assertion that, if a person can understand every minutia of every facet of how the economy works, then that person can run the economy better than the market.
While the basic definition of the LTV is that the relative values of commodities are based on the relative amounts of human labor that are used in their production, over the course of a three volume monstrosity, Marx and Engels introduce a few key concepts to improve on that definition.
First, Marx clarified very early on that mere labor is not the basis of value, but Socially Necessary Labour. Implicit in this concept is the idea that society as a whole comes together to determine both how worthwhile a commodity is and a society-wide average of how much labor it ought to take to produce it. And, with a complex set of economic scales and measures, the communist economy planner can determine the perfectly accurate price for every commodity.
Second, Marx very famously introduced the idea of surplus value, the difference between the cost capitalists pay for raw materials and labor and the price they are able to charge for the commodity. The problem with capitalism, as Marx conceived, is that the rich and powerful capitalists exert their arbitrary and undeserved power to extract that surplus value from the laborers who produced the commodity.
Marx’s critique of political economy missed something simple and fundamental in his conception of surplus value. Surplus value has another side to the coin, a yin to its yang:
Chaos
The second law of thermodynamics states that, in a closed system, the net level of organization can only decrease. That’s called entropy, disorder, chaos. A person can build a house, but once it is built, a tsunami can knock it down, or a wildfire can burn it to ashes, or if nothing at all happens to it, it will simply wear down — the beams will warp, the roof will leak, the foundation will crack — under the sheer pressure of time.
Every economic decision is a flip of the coin, heads you win, tails you lose. Humans are, as a species, loss averse. As Jordan Peterson put it, “You can only be so happy, but you can be dead.” For surplus value to be distributed equally among the laborers, so too would chaos be distributed equally among the laborers. And most laborers are more afraid of chaos than excited by surplus value.
That is why we in the market economy, without even being able to describe what we are doing, buy and sell chaos. We have a chaos market.
Chaos can come at any time and remove your home and its value from existence. You pay your insurance company to take that chaos off your shoulders.
Chaos can come in the form of a swarm of locusts or an innovative competitor in the corn market and remove a crop of corn and/ or its value from existence. Corn farmers sell unsown crops to futures traders to take that chaos off their shoulders.
Futures trading is just specialization of labor. Corn growers are experts in growing corn, but futures traders are experts in the fluctuations of the corn market.
And, of course, there is the stock market. All the chaos in the world is boiled down to which companies will succeed and which will fail and at what time. And every single adult human in the WEIRD world is allowed to buy that chaos. Even so, a full 45% of Americans have bought none.
Outside of our chaos market, in every other industry, the price of chaos is surplus value. Whoever owns the chaos gets the surplus value.
While a pile of wood and graphite and rubber isn’t a pencil until a laborer comes along and assembles them, the laborer cashes the same check if pencils go up in value or down in value. The capitalist owns the chaos, so the capitalist’s check goes up or down with the value of pencils.
Walmart introduced a program of paying part of even the most lowly associate’s wages in company stock. Some early Walmart cashiers retired as millionaires. Enron did the same thing. Some of their employees retired penniless. Chaos and surplus are inextricable. That is what Marx failed to recognize.
Markets are capable of grasping the complex realities of the world implicitly even if not a single person operating in the market can articulate them explicitly. That is why markets outperform central planning over the medium and long term every time without exception.
But at the end of the day, the foundational idea of the LTV according to Marx is not that value is directly proportional to the labor used in production but that, without labor, nothing is worth anything. A tree has the potential to become food or shelter, but until humans come along and do labor to the tree, it is completely useless to all humans. And that is an important truth. In a time when everything is becoming increasingly automated, it’s important to remember that nothing can be worth anything unless a human does something to it.
Having said all that, the Labour Theory of Value has long since been replaced with the Subjective Theory of Value which sidesteps all the complex economic scales and measures and simply states that a thing is worth whatever someone is willing to pay for it. Because that is the only rule that always applies in every single economic exchange that has ever taken place.
