Critical Observations on the Labor Theory of Value and Sraffa's Standard Commodity

Abstract

The pure Ricardo-Marx labor theory of value asserts that the ratio of the values of any two commodities is equal to the ratio of their total labor costs, that is, the sum of direct labor costs and indirect labor costs embodied in machines and other factors of production. Samuelson provided an exposition and critique of this labor theory of value and its relationship to the so-called transformation problem between Marxian values and competitive prices; when such values and prices differ, the door is open for a Marxian theory of exploitation. Such a labor theory of value can be stated in three equivalent forms, each having certain advantages. A labor theory of value can be interpreted as a mark-up theory of pricing. The chapter also discusses the close relationship between the pure labor theory of value and Sraffa's standard commodity. More general labor theories of value based on Sraffa's results are economically insignificant. When substitution among factor inputs is possible, the labor theory of value must be modified as now labor and other input coefficients depend upon factor prices. A labor theory of value is possible in such circumstances, although the necessary and sufficient conditions for its validity are so severe that the case must be dismissed as a freak. Ironically, when this labor theory of value is valid for a technology with neoclassical production functions, then the model behaves qualitatively similar to the one-sector Solow–Swan model.