Marxism

The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx’s masterpiece, Capital (1867). The theory’s basic claim is simple: the value of a commodity can be objectively measured by the average number of labor hours required to produce that commodity.

If a pair of shoes usually takes twice as long to produce as a pair of pants, for example, then shoes are twice as valuable as pants. In the long run, the competitive price of shoes will be twice the price of pants, regardless of the value of the physical inputs.

Marx argued that the theory could explain the value of all commodities, including the commodity that workers sell to capitalists for a wage. Marx called this commodity “labor power.”Labor power is the worker’s capacity to produce goods and services.Marx, using principles of classical economics, explained that the value of labor power must depend on the number of labor hours it takes society, on average, to feed, clothe, and shelter a worker so that he or she has the capacity to work.

Capitalists, Marx answered, must enjoy a privileged and powerful position as owners of the means of production and are therefore able to ruthlessly exploit workers. Although the capitalist pays workers the correct wage, somehow—Marx was terribly vague here—the capitalist makes workers work more hours than are needed to create the worker’s labor power.

Marx was correct when he claimed that classical economists failed to adequately explain capitalist profits. But Marx failed as well.
Mainstream economists now believe that capitalists do not earn profits by exploiting workers (see profits). Instead, they believe, entrepreneurial capitalists earn profits by forgoing current consumption, by taking risks, and by organizing production.

Marx condemned the free market, for instance, as being “anarchic,” or ungoverned. He maintained that the way the market economy is coordinated—through the spontaneous purchase and sale of private property dictated by the laws of supply and demand—blocks our ability to take control of our individual and collective destinies.

Marx’s notion of alienation rests on a crucial but shaky assumption. It assumes that people can successfully abolish an advanced, market-based society and replace it with a democratic, comprehensively planned society.

Here is the greatest problem with Marx’s theory of alienation: even with the latest developments in computer technology, we cannot create a comprehensively planned system that puts an end to scarcity and uncertainty.

Although capitalist markets have changed over the past 150 years, competition has not devolved into monopoly. Real wages have risen and profit rates have not declined. Nor has a reserve army of the unemployed developed.

Socialist revolutions, to be sure, have occurred throughout the world, but never where Marx’s theory had predicted—in the most advanced capitalist countries. On the contrary, socialism was forced on poor, so-called Third World countries.