The Cracks in Marx’s Labor Theory of Value

Free-marketers must be constantly vigilant in an age of economic fallacies, chief among them being the labor or cost theory of value. Promoted by Marx and the Classical Economists, this theory fails to explain market prices and the origin of money, and the results of its acceptance are catastrophic.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

An argument can be made that nature and labor are the ultimate sources of all value—an argument that Karl Marx made in his Critique of the Gotha Program. An apple has value because it is nourishing (nature) and because it has been harvested and transported (labor). But Marx took this idea to unreasonable conclusions.

First, he defined labor too narrowly, including only those directly involved in producing a product, while excluding capitalists who plan, finance, and coordinate its production. On the one hand, Marx believed capitalists performed the necessary historical function of solving the problem of production—accumulating capital, advancing technology, and creating the post-scarcity world necessary for socialism. On the other hand, he routinely characterized capitalists as “parasites” and “bloodsuckers.” Which is it? If “labor” includes planning, arranging financing, and coordinating, then capitalists qualify as laborers, and Marx’s distinction collapses. If labor excludes these activities, then something beyond labor is necessary for production.