We’re Still Haunted by the Labor Theory of Value

Why are so many students convinced that they should receive better grades for the papers they’ve spent so much time writing? It’s not a belief about the quality of those papers; it’s a belief about the hours and hours spent working on them.

This fundamental misunderstanding about the value of labor is at the center of the Marxist critique of capitalism.

The Center of Everything

For thousands of years, humans were sure that the earth was the center of the universe and the sun revolved around it. With the advent of systematic inquiry, scientists had to develop more and more complex explanations for why their observations of the universe did not fit with that hypothesis. When Copernicus and others offered an alternative explanation that was able to explain the observed facts, and did so more clearly and concisely, the heliocentric model triumphed. The Copernican revolution changed science forever.

There is a similar story in economics. For hundreds of years, many economists believed that the value of a good depended on the cost of producing it. In particular, many subscribed to the labor theory of value, which argued that a good’s value derived from the amount of work that went into making it.

Much like the geocentric view of the universe, the labor theory of value had some superficial plausibility, as it does often seem that goods that involve more labor have more value. However, much like the story in astronomy, the theory got increasingly complicated as it tried to explain away some obvious objections. Starting in the 1870s, economics had its own version of the Copernican revolution as the subjective theory of value became the preferred explanation for the value of goods and services.

Today, the labor theory of value has only a minuscule number of adherents among professional economists, but it remains all too common in other academic disciplines when they discuss economic issues, as well as a…