Marxist Labor Theory of Labor - Essay Example

The labor theory of value is an idea which Ricardo studied in the “Principles of Political Economy” which Karl Marx adopted and modified in “Das Kapital”. Loosely summarized, the labor theory of value involves the idea that value of a commodity is derived from the work and time needed to produce it, and in which under Marxian interpretation, a worker is thus, exploited in capitalist society when he/she fails to be compensated for the full value of all production. I will explore upon how Marx modified Ricardo’s labor theory of value, and the similarities and differences found in the two authors’ arguments.

In the “Principles of Political Economy and Taxation,” Ricardo’s theory of labor emphasizes that a price of a good is “labor-embodied.” In other words, a commodity’s value in competitive market is determined by the labor costs required in producing them. Moreover price of a good was dependent upon its supply and demand in the short run. Ricardo then integrated his labor theory of value with a theory of distribution which divided national economy into three classes: landowners, workers, and capitalists. Wage is paid to the laborers who spend their income on necessities, rental income is paid to landowners who have the means to spend their income on luxury goods, and profit income paid to owners of capital save their profit income to reinvest it. Ricardo argued that the total profit is determined residually by real wage and cultivation of land. Ricardo’s views on growth potential of economy are constrained to limitations. In other words, national economy cannot grow infinitely. Thus, under this constraint of limited growth potential, Ricardo concluded that one social class cannot have access to a larger share of total product without subtracting from another class.

Ricardo related durable capital with economic growth but the production of consumable goods may not have positive growth of the economy. However, Marx argued that the value can be derived from agricultural and industrial labor. In this case he values industrial capital and considers it important for development compared to the circulating capital. Ricardo states that “Value, comparatively with other things, depends on the total quantity of labor necessary to manufacture commodities and bring them to the market” (Ricardo, 1927). In this case the rate of profit is calculated using all the capital applied during production. It may be for fixed, circulating, and wages according to Marx but Ricardo assumes it and argues that profits are necessary expense for production.

Ricardo’s argument that taxes reduce profits is valid as they lead to less productivity and wealth in various ways (Ricardo, 1927). Whenever consumer goods are taxed they cost more leading to low profits and accumulation of capital. Taxes on domestic produce also known as tithes may lead to their low production and a shift to other goods and services. Imposing taxes on exports creates expenses for the government, which is later imposed on foreigners. According to Ricardo this may apply to tea by countries such as China (Ricardo, 1927). Interests on rent do not have a great impact on the economy since the landlord is the one that bears it. He considers landlords as unproductive persons in the society especially if applied on raw land. However, if the rent is on the returns on capital invested on land they may have positive impact on the economy. Taxes on land are passed to consumers if assessed on value regardless of the amount of rent. Other taxes on wages may have impacts as they reduce the increase the burden on the payers especially the labours as they receive less pay.

Marx argues that the price of commodities should be based on the time spent to produce it. In this case one would expect that heavy industries pay the highest wages to workers. Labor relates to the energy consumed and not necessarily on time spent producing a commodity. In addition, the goods produced should also fetch high profits but this is contrary to what happens in reality. People who work in such industries get lower pay compared to the others especially in the service industries. For instance in the art and music industry a person perform for a few minutes and is paid millions while in other industries such as agriculture a worker spends a whole day and earns a few dollars. The idea expressed by Marx tends to rest on an inapplicable assumption that argues that it is possible to do away with the advanced and market-oriented society and replace it with one that is democratic and well-planned. This means that those that toil a lot should in turn have high returns to compensate their labor. However, this is not the case as in many cases people who work for long hours tend to receive low pay compared to the ones who do not.

According to Marx Humans are alienated as many toil in various jobs including the degrading ones to compete in the market place (Marx, 1967). Thus human beings aim at making huge profits instead of trying to satisfy their needs. Toil does not bring happiness and Marx believed that capitalism brings about alienation and separation. This is because people lack the potential to make plans and be able take control of their collective fate. This theory can only apply to capitalist societies in which goods are produced with wage labor for sale. The TLV cannot apply in the modern economies as the opposite happens whereby those that work for long hours are paid less and vice versa. Commodities have a market value depending on the forces of supply and demand. The value may be the exchange value or its capacity to satisfy human needs. All commodities are a product of labor and therefore should fetch a price that exceeds the cost of production. Marx’s theory only supports the mode of production by capitalists but may not apply in other areas (Marx, 1967). For instance, in the era of technology those who adopt modern skills have higher profits yet little time is spent producing commodities. Marx argues that the burden of tax goes to the consumer especially the poor ones since they tend to raise the cost of consumption. Taxes on rent tend to raise its cost and place the largest burden on the poor people rather than the rich. Over taxation is also common to governments and other agencies overburdens the citizens and Marx portrays profits as wages paid to the capital’s owner. The labor theory of value by Marx was to demonstrate the value of goods produced by agricultural and industrial sectors. The labor in these sectors determines the amount of profits gained after selling the products. Similarly, labourers should be paid depending on the number of hours worked and the amount of work done. The problem with the theory by Marx is that it based on a rigid economic system, which does not have flexibility characteristics of the actual capital systems. The value attached to physical capital assets is considered important in determining the value of all the commodities produced in an economy. The value of labor used in developing the capital should also determine the amount of profit made after selling the commodities.

The arguments by Marx and Ricardo were similar in some ways. Marx and Ricardo worked on the quantification of embodying the labor components to enable them come up with the theory of real price of every commodity. However, there is no need to quantify all the past labor or include the labor that was used for the creation of tools used during the production process. The assumptions by the two were similar in that the exchange value was equal to the proportion of the labor used. This was a good step in the exploration of the dynamics of the rise in the societies that practiced capitalism. Value is associated with something created by labor thus a commodity that requires more labor to produce will fetch a high value, which they agree on. More skilled labor may lead to production of more goods of high value since skilled workers are more productive. They produce more and at a higher value compared to less skilled workers as argued by Marx and Ricardo. David Ricardo suggested the principles of political economy and taxation in which he has some similar arguments similar to the concepts Marx. He suggests that prices should be set by the forces of demand and supply although in the long-run the cost of supply dictates the prices of goods in the market. Any increase in population lowers the ordinary workers back to the subsistence level. The amount of profit is dependent on the cheapness of labor and other consumer goods. If capital accumulates to high levels the profits may continue rising. This is in agreement with Marx theory of labor since he also argued that the value of commodities depended on the amount of labor consumed to produce the commodity. Similarly, the two theories contradict the realities in the economy as in many instances commodities that require large amount of labor may fetch low prices.

There were some differences in the way they argued their theories. Ricardo argues that the products of non-skilled workers may never fetch a high price simply because it took long to produce it. This contradicts the Marx Theory of labor since the product that results from the skilled personnel and produced faster fetches a better price. Spending more time to produce an item does not mean that it will be of great value and will sell at a higher price. Ricardo argued that prices equalled wages plus profit (rent zero) since wages and profits were the determiners of prices while prices determined rent (Ricardo 1927). On the other hand, Marx argued that the prices of production were equal to (c + v + s) which means were equal to dead labor/ fixed capital + living labor/variable capital + surplus value/labor (Marx, 1967). Ricardo's based his theory profit as based on his corn models in which the rate of profit was equalled to net product (NP) or total profit (Ricardo 1927). Marx (1967), argued that the rate of profit was to be expressed as r = s/v/(c/v + 1) in which putting more machinery in the production would increase the organic composition c/v causing a fall in profits.

In conclusion, Marx and Ricardo’s arguments on the labor theory of value are similar in many ways and contained some differences as discussed. The issue with the theory is its suggestion that the value of labor depends on the time spent doing a task. However, this may not be applicable in the real sense since there are other actors that determine the rewards such as improved technology, tax, and other actors. The problem with Marx and Ricardo Theories on labor is its prediction that labor-intensive industries have high profits after selling their commodities, which is false. This is because such industries may take long to produce a commodity compared to others thus marginal profits are low. Value of objects is based on peoples’ desire or the items and not the amount of labor and time spent in producing the items. Marx’s theory was addressing the capitalism society during the earlier times therefore they may not apply in the modern economy.