Marxist labor-value theory is easy to falsify
The Marxist labor-value theory bases on the idea that goods’ value only depends on the socially necessary amount of labor which is required to produce them. Before presenting my critique to this theory, I will briefly clarify some of its points.
First, Marx does not ignore the difference between skilled and unskilled labor. In his view, labor quality does not matter as skilled labor can be reduced to unskilled ones by considering the amount of labor that is necessary to make it such. For instance, engineers’ contribution to value must also take into account the amount of labor which have been necessary to make them learn engineering, phisics and math. Second, also machines (capital) and intermediate goods’ contribution to value can be reduced to the amount of labor that they incorporate.
Since he observes capitalists making profits and economic growth, he also realizes that production output’s value is higher than the sum of inputs’ one. Accepting classical labor-value theory as an hypothesis, he identifies the source of such profits into plus-labor, a significant portion of labor which is not paid to their sellers. Marx simply understands that if this were not the case, then there wouldn’t be possibile to realize profits. I personally agree that if one accepts labor-value theory as an hypothesis, then the Marxian conclusion about plus-value follows logically from profits’ existence. Nonetheless, Marx does not even try to justify it as an assumption, probably because that was the only value-theory that, elaborated by Smith and Ricardo, was available at the time. The aim of this post is to show that labor-value theory is an easily falsifiable hypothesis by means of empirical evidence. To see this, consider the following arguments.
- According to Marx, the land is “the general object of human labor”. But if things’ value only depends upon the amount of labor that they incorporate, why different pieces of land produce, with equal amounts of labor, products of different value? For instance, consider Barolo wine vs. Sangiovese, Avocado vs. Apple, Sorrento Lemons vs. all other ones, etc… Maybe the land is no longer homogenous, as Ricardo understood, and there are other sources of value, rather than only labor.
- Why has gold always been given a higher value than other metals? We know that is not the case that gold is the most difficult metal to extract. There were open-sky gold mines in Africa and America. Therefore, it’s more likely that reasons for gold’s value belong to ideas of scarcity and beauty, rather than labor. Note that the same argument can apply to all natural resources, such as water and oil, which seem to have an intrinsic value, negatively depending on the abundance level at which they’re available on hearth.
- The famous water-diamond paradox. Surely diamonds have more value and incorporate more labor than water (they have, technically speaking, a higher marginal cost of production). However, I guess that after some days without water, anyone would be willing to exchange many diamonds for some water. The reason for this is that the value we assign to goods depends on how much of that good we’ve already consumed (marginal utility argument).
- Why do different people exhibit different willingness to pay for the same good? A suitable example are auctions, mechanisms that, for instance, regulate prices on Amazon, Ebay, on stock exchanges, and of CO2 emissions. Again, subjective characteristics are a determinant of value and prices.
- A related argument is the observed heterogeneity of prices in the geographical space. As an example, consider the case of Apple iPhone, which costs much more (relatively to other smartphones) in the EU than in the USA. Why is it the case if smartphones’ value only depends upon their incorporated labor?
- Why do different people, with the same amount of labor, produce goods of different values? As already recalled, Marx proposes a reduction mechanism which is based on skilled labor’s higher cost of reproduction. However, we can easily see that this statement is unable to explain some relavant cases. Consider, for instance, a professional football player like Lionel Messi or a popular influencer like Chiara Ferragni. Their cost of formation and reproduction is extremely lower than the cost of producing an aerospace engineer. However, with one hour of labor, they produce much more value. Maybe, once again, we have to admit that the source of such value is scarcity of other Messi or Ferragni, rather than their labor.
- If labor is the only source of value, one good should be given the same price irrespectively on the market structure where this good is sold. However, we know this is false. Market power is a crucial determinant of prices.
- Why does a stock’s value change over time even though firms’ don’t change their production inputs?
I am perfectly aware that some of my arguments could be partially killed by replying that prices and values are two distinct entities, whereas some others would still last under this distinction. Moreover, if one has to reject that price proxies value, than he has to define value as a distinct and (at least partially) observable entity. The issue of observability is crucial in order to give value an empirical counterpart, which is necessary for falsiability.
In conclusion, the classic labor-value theory is patently unable to explain some of the empirical evidence related to prices and exchanges. Due to this reason, it’s not plausible to found on it an economic science which pretends to explain the way in which prices are formed in the market. Personally, I reputate modern laws of demand and supply (microeconomic theory) and of market power (industrial organization) much more close to this ambitiuous objective.
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